Fixed Annuities Examined
Posted on Oct 21 2009 | Tagged as: Finance
Annuities are issued by Insurance companies as a type of investment contract. They use Insurance agents and/or brokers to offer these policies to investors, who pay into the annuity. After a set period of time, the investor gets a return on his investment. When the annuity is fixed, the principle is guaranteed. Annuities are a safe way of investing to accumulate wealth, they are tax-friendly and are often used as retirement savings plans.
Annuities can be structured by varying the duration of the accumulation period , the length of payments and various other factors. One of these options is fixed annuities which provide security to the investor. In the case of fixed annuities, the investor is guaranteed a minimum interest rate for a fixed time period. In addition, there can also be a minimum benefit paid. This makes it predictable for the investor, ensuring the amount of return he will get during the term of the contract.
If you decide on a fixed annuity, it can either be funded with one lump sum payment or with a series of smaller payments over the course of time. The returns from traditional fixed annuities are guaranteed to increase as they do not depend on increases in the stock market or other equity investments. There is a steady return of interest and also a steady future cash flow to the investor from the annuity.
There are options for how fixed annuities are paid out. With immediate payment annuities, the investor makes a lump sum premium deposit and immediately receives fixed monthly returns. This is a good way for an individual to turn a lump sum into a retirement income stream.
With tax-deferred annuities, the investor either deposits a lump sum and accumulates interest over time, or makes payments into the annuity, with the returns being paid out after a set period of time. This kind of fixed annuity is often used as a retirement savings plan. Many individuals fail to plan for their income needs in retirement. In many cases a fixed immediate income annuity can fill the gap.
- Kenneth Nuss