The Basics of Annuities

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An annuity is sometimes referred to as the opposite of life insurance. This is because an annuity insures individuals against the risk of living too long. With an annuity, the annuity purchaser pays a premium to the insurance company, and receives in exchange, a regular stream of income payments from the insurer. The stream of income payments begin either immediately, or at some time in the future, and continue until the insured person(s) die.

Deferred Annuity:
An insurance product whereby at least a year will elapse between when the lump sum or series of premium(s) are paid, and the annuity is transitioned into a stream of income through annuitization. Deferred annuities can be Fixed, Indexed, or Variable in nature.

Immediate annuity:
An insurance product whereby a lump sum premium is paid and the annuity is transitioned into a stream of income through annuitization within one year from the date of purchase. Immediate annuities can be Fixed, Indexed, or Variable in nature. Deferred annuities typically are used as vehicles for accumulation, or building additional interest
until the annuitant is ready to transition the annuity to a series of payments through annuitization. Alternatively, an immediate annuity is often used as a vehicle for individuals who are ready for their income stream to begin, well, immediately. Both deferred and immediate annuities can have their interest credited in several different ways. The two basic types of deferred and immediate annuities are Fixed and Variable. Of the fixed variety, there are (traditional) Fixed, as well as Indexed.

Fixed Annuity:
A contract issued by an insurance company that guarantees a minimum interest rate with a stated rate of excess interest credited, which is determined by the performance of the insurer's general account. Multi-Year Guaranteed Annuities, a type of Fixed Annuity, guarantee a minimum interest rate for more than a one-year period; this rate is also determined by the performance of the insurer's general account. A Fixed Annuity is considered a low risk/low return annuity product.

Indexed Annuity:
A contract issued by an insurance company that guarantees a minimum interest rate of zero, where crediting of any excess interest is determined by the performance of an external index, such as the Standard and Poor's 500® index. An Indexed Annuity is considered a moderate risk/moderate return annuity product.

Variable Annuity:
A contract issued by an insurance company that has no minimum guaranteed interest rate, where crediting of any excess interest is determined by the performance of underlying investment choices that the annuity purchaser selects. A Variable Annuity is considered a high
risk/high return annuity product.

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Видео The Basics of Annuities канала BrokersAlliance