Like many products available in life, annuities are not something you have to buy or invest in, but are an attractive option for someone seeking guaranteed investment growth, income, or protection of principal.*
There are 3 basic types of annuities: Immediate, Fixed, and Variable.
Immediate Annuity – is an annuity purchased with a single premium on which income payments begin within one year of the contract date. With fixed immediate annuities, the payment is based on a specified interest rate. With variable immediate annuities, payments are based on the value of the underlying investments. Payments are made for the life of the annuitant(s), for a specified period, or both (e.g., 10 years certain and life).
Fixed Annuity – is an annuity contract providing a specified rate of interest paid on the amount invested during the accumulation phase and a specified payment amount during the annuitization phase. The issuing company assumes the investment risk.
Fixed Indexed Annuity – This is another kind of fixed annuity, sometimes considered a hybrid annuity. In this type of annuity contract the interest credited is based upon the performance of an equity market index, such as the S&P 500. The principal investment is protected from losses in the equity market, while gains add to the annuity’s returns.
Variable Annuity – is an annuity into which the buyer makes a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments beginning immediately or at some future date. Purchase payments are directed to a range of investment options, known as subaccounts, or directly into the separate account of the insurance company that manages the portfolios. The value of the account during accumulation, and the income payments after annuitization vary, depending on the performance of the investment options chosen. Variable annuities can have high annual fees and expenses which are listed in their prospectus.
The investment options do not provide any guaranteed returns and it is possible to lose money in a variable annuity. There may also be substantial surrender charges or taxes if you cancel your contract and withdraw your funds.
If you are considering an annuity purchase, be sure to fill out our quote form to research suitable options available.
* Guarantees are based on the claims paying ability of the insurer you invest with. They are not guaranteed by any government agency such as the FDIC.