Factors That Can Help You Understand Annuities To Make Better Investment Decisions

Written by admin on May 14th, 2011

An annuity is a form of insurance that assures a certain amount of insurance for a certain amount of time. This can help you in quite a few situations and it is taxed and formulated in different ways.

For many middle-aged people, annuity has become a popular insurance investment choice. Understanding investment terms, including annuity, can be very confusing, but should not hinder you from making the best choices for your future. This is how an annuity works:

Explanation of annuity

You, as the insured investor, receive periodic payments in return, starting in a guaranteed year, in case of an insurance investment known as Annuity. You can get your returns annually for the remainder of your life or for a limited time. Use affordable cash payments over a long period of time or spot cash to cover an annuity.

How annuity benefits you

Annuity can benefit you in many ways. First, it will be a primary source of income in your retirement planning. Most annuities start paying out at the age of 60, just in time for your retirement. You will still receive periodic amounts from your annuity even if you have no more job. If you have a child under the age of five, you can use investments of this type to aid in long-term goals, like a college funds. Taxes are deferred with annuities. The reason for this is that your investment earnings will only be taxed after your returns have been paid out. Finally, annuities can be very accommodating. Your goals can be matched with a particular annuity type that is offered through an investment company by an insurance agent who, through Annuity Leads, may have read your information and conditions.

Types of Annuity

There are a variety of kinds of annuities depending upon annuity variations, the terms of your returns payment, the amount of money you earn annually, the terms of your premium payment.

Based on the best terms of payment. When paying your premiums, annuity premiums can either be flexible or single. You pay for your annuity in one single payment, commonly known as a lump sum, with single premium annuity. However, you can pay for the annuity in regular, smaller amounts over a certain time period with flexible premium annuity.

The amount is calculated by reviewing your yearly earnings. Annuities can also be either fixed or variable. Your principal and interest can be jeopardized by a fixed annuity that promises a fixed amount of returns annually. Usually, conservative types of investments or government securities, these annuities are invested. Alternately, variable annuities are those which are invested in more flexible investments, such as mutual funds. Depending on the earnings your annuity makes, variable annuities payments are varied, not guaranteed.

Depending on the term of your returns payment. With regards to the payment of your returns, you can either opt for term annuity or life annuity. Term annuity guarantees you regular payments for a certain period of time. If you die during the payment period of your term annuity policy, your beneficiary will receive the returns that are left. You are guaranteed payment throughout your life with life annuity, but the payment will be stopped and no refund will be given once the person passes away.

Other variations. The annuity fit for married couples, is another type of annuity known as joint annuity. It is structured in such a way that when one of the spouses passes away, the surviving spouse continually receives regular payments in return. Another type of annuity that combines both fixed annuity and term annuity is term certain, and for a fixed period of time you will receive fixed return payments.

The variables having an effect on annuity payments

Four key factors which contribute to the amount of payment returns you get include your principal, your interest earnings, demographics, and also the term of payment. The higher your principal and interest, the higher your returns will be. Demographics also play an important role. For instance, if you reside in a state where life expectancy is higher you may get less periodic returns, especially when it comes to life annuities. Finally, if the period of payment is longer, you may receive smaller annuity payments compared to shorter or term annuities.

How you pay applicable taxes

Annuities are not exempt from taxes, but the great thing is that they are deferred. When returns are paid out to you, you have to start paying these taxes. There are both non-prescribed and prescribed annuities. Non-prescribed annuities allow for payment of taxes in a gradually decreasing manner until taxes reach zero, while prescribed annuities allow for payment of taxes to be distributed evenly throughout the policy’s term.

Make sure you decide which type suits your condition and your future needs best, when you plan to make use of an annuity. Compare quotes from different insurance or investment companies in order to get the best value from your investment.

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a Reply