Understanding Fixed Annuities
Posted on Oct 21 2009 | Tagged as: Finance
Annuities are issued by Insurance companies as a type of investment contract. They use Insurance agents to offer these policies to investors, who pay into the annuities. 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.
Fixed annuities are paid out in different ways. One option is immediate incom annuities. This option allows individual investors to turn a lump sum into a stream of income because the annuity is paid out at a fixed monthly rate, beginning immediately.
A fixed annuity can be funded with one large payment, or with a series of payments over time. Returns on traditional fixed annuities do not rely on increases in the stock market or other equity investments and funds are guaranteed to grow. There is a stable interest return and future cash flow from the annuity to the investor.
When investing in deferred payment annuities, you may choose to deposit a lump sum at the beginning which builds interest over time. Or, you may deposit money into your annuity over the course of time, and your returns will be paid out to you after a set period. This type of fixed annuity is commonly used by investors as a savings plan for retirement. The annuity value continues to grow and compound while in deferral. When additional income is needed, the investor can choose a payout structure to suit his needs.
- Curtis McDowell