An annuity is a contract with an insurance company. When you buy an annuity, you agree to make premium payments to the insurance company in exchange for which the insurance company agrees to make payments to you at a later time for a specified period.
The person who receives the benefit payments is known as the annuitant and usually this person is also the owner of the annuity, however, this does not have to be the case.
When the accumulation period is over, the company begins distributing your funds. The annuitant can receive them in one lump sum, or he/she can choose to receive funds periodically (usually monthly) for a specified period.
Below is some of the payout options for annuities:
- The annuitant can receive all of the funds in a lump sum payment.
- A life annuity makes payments of a regular amount for as long as the annuitant lives.
- Joint and survivor annuities make payments for the life of the annuitant and a beneficiary, usually a spouse
- Period certain annuities make regular payments for a predetermined time frame.
- The life annuity with refund option provides the annuitant with a guaranteed income for life and continues the payments to the beneficiaries according to the terms of the refund. With the refund provision, upon the death of the annuitant the beneficiaries receive an amount equal to the difference between the annuity's accumulated value prior to annuitization (payout) and the total of benefits received by the annuitant.
- Interest-only annuities pay the interest on the account value to the annuitant. However, the annuitant can also withdraw all the funds from the account as a lump sum when he or she chooses, sacrificing the interest payments.
Fixed vs. Variable Annuities
Annuities can be a great way to build additional capital for retirement. With traditional fixed annuities, the insurance company invests your premium in its general account. Whatever payout option you select, the interest gains and payment amounts are guaranteed by the insurance company, which assumes the risk of investing the general account.
With variable annuities, however, the premiums buy units in your choice of separate accounts, which then invest in other instruments such as stocks or bond funds. The payout will depend on the performance of the underlying securities in the separate accounts in which your premium is invested. Unlike fixed annuities, the value of your account is not guaranteed-you assume the risk involved in investing your premiums in exchange for potentially higher returns.-
The person who receives the benefit payments is known as the annuitant and usually this person is also the owner of the annuity, however, this does not have to be the case.
When the accumulation period is over, the company begins distributing your funds. The annuitant can receive them in one lump sum, or he/she can choose to receive funds periodically (usually monthly) for a specified period.
Below is some of the payout options for annuities:
- The annuitant can receive all of the funds in a lump sum payment.
- A life annuity makes payments of a regular amount for as long as the annuitant lives.
- Joint and survivor annuities make payments for the life of the annuitant and a beneficiary, usually a spouse
- Period certain annuities make regular payments for a predetermined time frame.
- The life annuity with refund option provides the annuitant with a guaranteed income for life and continues the payments to the beneficiaries according to the terms of the refund. With the refund provision, upon the death of the annuitant the beneficiaries receive an amount equal to the difference between the annuity's accumulated value prior to annuitization (payout) and the total of benefits received by the annuitant.
- Interest-only annuities pay the interest on the account value to the annuitant. However, the annuitant can also withdraw all the funds from the account as a lump sum when he or she chooses, sacrificing the interest payments.
Fixed vs. Variable Annuities
Annuities can be a great way to build additional capital for retirement. With traditional fixed annuities, the insurance company invests your premium in its general account. Whatever payout option you select, the interest gains and payment amounts are guaranteed by the insurance company, which assumes the risk of investing the general account.
With variable annuities, however, the premiums buy units in your choice of separate accounts, which then invest in other instruments such as stocks or bond funds. The payout will depend on the performance of the underlying securities in the separate accounts in which your premium is invested. Unlike fixed annuities, the value of your account is not guaranteed-you assume the risk involved in investing your premiums in exchange for potentially higher returns.-