Make A Wise Decision By Choosing A Favorable Annuity
The contract wherein you agree to make a large payment or a series of payments to the insurer and the insurer promises to make periodic payments to you beginning at some future date is called an annuity. Your insurance agent must have a life insurance license along with a license from the Securities and Exchange Commission (SEC) or the National Association of Securities Dealers (NASD).
Benefits
The annuity provides tax-deferred growth of earnings and has a death benefit, which pays your beneficiary a minimum amount that may sum up to be your total purchase payments.
In case your insurance company goes bankrupt, the other licensed companies in the state will be honoring your contract. According to the terms of the annuity, you pay a sum of money to the insurer and in turn you will be paid scheduled payments at once or delayed payments after a period of time.
The Annuity and its types
- Fixed Annuity: The insurance company offers you the guarantee for earning a minimum rate of interest at the time of your account growth. You are also guaranteed the periodic payments. The periodic payments may last for a definite (may be 20 years) or indefinite period (lifetime). The SEC does not regulate it.
- Variable Annuity: Here, you can choose from the host of investment options for investing your purchase payments. Moreover, the amount of the periodic payments and the rate of return on your purchase payments will be dependent on the performance of the investment options that you have selected. The SEC regulates it.
An equity-indexed annuity
This is a special kind of annuity where you make a large payment or a series of payments during the accumulation period. After the accumulation period, you will receive periodic payments under your contract terms, unless you make a choice to receive your lump sum contract value.
A deferred annuity and an immediate annuity plan
Choose a deferred annuity if you do not have immediate need for the money and require saving for your retirement. However, there may be penalties for early withdrawal. On the contrary, you will be wise enough to opt for immediate annuity if you have already retired or are close to retirement.
Choice of an annuity plan
Before choosing an annuity plan, see if it offers Income for Life option, as this guarantees income for your lifetime. You can also go for Income for Life with a guaranteed period option that is more attractive. The best is the Joint and Survivor option, which offers payment to you and your companion.
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