Knowledge About Annuities Helps You Make Better Investment Decisions


An annuity is an investment that guarantees to pay you a certain amount for a certain period of time. It can benefit you in several ways, comes in different type that are computed using different factors, and is taxed in different ways.

The annuity is now a well-known insurance investment option for a lot of middle-aged people. It should not hinder you from making the best choices for your future, though understanding investment terms, including annuity, can be very confusing. Here is a simple overview of annuity and how it works:

Explanation of annuity

A popular type of insurance investment is an annuity, which guarantees periodic payment returns in a specified year. You are able to receive payments the rest of your life or during set periods. The annuity can be paid for using either long-term affordable cash payments or spot cash.

The benefits of annuities

You could gain a lot from an annuity. First, it will be a primary source of income in your retirement planning. Most annuities kick in at 60 for your retirement. Even if you have no more job, you will still receive periodic amounts from your annuity. You can also use this type of investment to answer your long-term goals, such as a college fund for your child who is currently five years old. One of the advantages of annuities is that you don’t have to worry about paying taxes in the present as they are deferred. This is because your investment earnings will be taxed only when the returns are paid out. Buying an annuity is usually pretty easy. Need help finding the right annuity? An insurance agent can read your information and conditions through Annuity Leads and match your goals with a particular annuity type.

Kinds of Annuity

Your annual earnings, the term of your returns payment, and other annuity variations and your terms for payment are the factors on which different types of annuities are based.

Depending on premium payment terms. When paying your premiums, annuity premiums can either be flexible or single. One premium annuity will allow you to pay it off in one lump sum payment. 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. The yearly payment can either be a specified amount or an amount that can be changed from time to time. Fixed annuities guarantee a fixed amount of annual returns, consisting of your principal and interest. Usually, conservative types of investments or government securities, these annuities are invested. Annuities invested in more flexible investments, such as mutual funds, are variable annuities, alternatively. Depending on the earnings your annuity makes, variable annuities payments are varied, not guaranteed.

Based on the term of your returns payment. You could use either life annuity or term annuity for payment of your returns. Term annuity guarantees you regular payments for a certain period of time. In most term annuity policies, if you pass away during your payment period, your beneficiary is entitled to receive the remaining returns. 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. The way it’s structured is that the surviving spouse will continue to receive the regular payment returns should one of you die. Term certain is also one another type of annuity which combines both term annuity and fixed annuity, where you receive fixed return payments for a fixed period of time.

Factors affecting 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. Higher interest earnings and principal come with higher payment returns. One big factor is demographics. For example, if you live in a state where life expectancy is higher, you may receive a smaller amount of periodic returns, especially with life annuities. As a result, if the period of payment is longer, you may receive smaller annuity payments compared to shorter or term annuities.

What are the ways in which you pay your due taxes

Annuities are not exempt from taxes, but the great thing is that they are deferred. Only when you are getting paid returns are you responsible for paying taxes on it. There are both prescribed and non-prescribed annuities. Prescribed annuities are those that allow for payment of taxes evenly all throughout the term of your policy, while non-prescribed annuities are those that allow for payment of taxes in a gradually decreasing manner until taxes reach zero.

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

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