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By Tony Bahu
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What is an annuity
While there are various kinds of annuities available, an annuity buyer can broadly classify them into two categories: Immediate annuity and deferred annuity. In the former case a series of fixed payments are made over a fixed period of time. Immediate annuity is an excellent mode of distributing savings. In deferred annuity, contracts similar to bank certificates of deposit are issued. This is an excellent way of accumulating savings.
Sources of purchase
Annuities are manufactured by insurance companies and can be purchased from duly licensed banks, stock brokerage and insurance company representatives. These may also be directly purchased from the insurance company that prepares the contract.
Understanding immediate annuity options
While these are less risky they offer low returns and are priced consistent with other guaranteed investments like government bonds. To purchase this, the buyer must pay a lump sum or a series of payments known as premiums to the insurance company. In return the buyer receives a fixed income payable for the rest of his life. Besides this, various other payment options are also available. In life annuity, payments are made over the life of the insurer. If the annuity is paid for a fixed time frame it is known as ‘annuity with period certain’. Annuity can also be paid over lifetime or fixed period whichever is longer. A temporary life annuity may be issued if the insurer pays a fixed number of payments that stop at death.
Understanding deferred annuity options
This comprises of two phases: accumulation and annuitization. The first phase comprises of the time between initial purchase and annuitization. The second stage is the time of conversion of the annuity into payments. The various options of deferred annuity include fixed, variable and equity indexed annuities.
Comparing options
Today various annuity organizations offer interesting options to make their products more attractive. Besides easy processing and good service backup remember to look for death benefit and living benefit options. Also investors can keep in mind that because of cross-subsidies and guarantees that annuities provide for life-long income, they receive favorable tax-treatment. Thus tax deductions, tax deferred growth for a period of time or pension savings free of income tax may be availed.
There are various annuities available and it may be difficult for you to decide what to opt for and how to go about it. We at annuitymd are here just for your assistance. Our panel of experts is here just to help you with your requirements, clarify your doubts and help you decide on the right option. We also assist with easy processing services.
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