About Annuity
When you are planning to make an investment, it is extremely important that you carefully consider all the given options carefully, and only then make a decision. There is no deficiency of the number of investments plans and scheme that are available in the market these days, and each of them, in turn, provides you returns in different ways. Annuity is one such form of investment. It happens to be one of the most sensible types of ROI, or Return On Investment options. Wondering what is an Annuity? Read on to find out.
Annuity refers to income generated from a capital investment that is issued in a series of regular payments. The best part is that the income thus generated is tax-exempted, and you keep receiving the regular payments for a long term, even lifelong in some cases.
Annuities can be broadly divided into two types: variable annuity and fixed annuity. Fixed annuity refers to that insurance contract in which the issuing company makes fixed payments to the annuitant for the tenure of the contract, usually lifelong. In this case, the company guarantees both principal and earnings. However, if one defaults, the cost of investment is extremely high. Variable annuity, although also a regular income, is of varying value. The value of your account in this type of annuity varies based on how the investment options you choose perform. Variable annuity is mostly used for mutual funds.
Annuities, although a great form of investment, have some downside too. On the brighter side, they provide you with a regular income. They are a great investment plans for when you retire. And that they are exempted from tax make them all the more lucrative.
On the downside, annuity increases the opportunity cost by making the money untouchable for a very long period of time. And in case you get in need of money before retirement, an extremely high fee is charged. But if you think there are remote chances of that happening, Annuities can be a great plan for ensuring a regular income.
Annuity is one of the most important types of investment that one can make. Unfortunately, a lot of people end up avoiding annuities because they fail to realise the long term benefits of the same. An annuity refers to a contract between you and an insurance company where you would be paid a series of income payments, usually after retirement, in return for paying premiums. In short, in an annuity one puts aside some money that would be made available to him, along with the interest, during the retirement time.
Annuities are usually classified in two categories: deferred or immediate. Immediate annuity involves paying a lump sum to the insurance company; the income payments in such annuity begin within 1 year. Deferred annuity involves paying premium to the insurance company over time; the income payments in this annuity begin much later.
Then the annuities can be also variable or fixed. Fixed annuities come with a fixed interest rate that a consumer would be receiving on their premiums. The funds will keep growing in your account, tax deferred, until they are turned into income payments or annuitized. Interest rate on variable annuities, on the other hand, varies on the basis of market growth rate. It can be larger in one year and smaller in other.
When you compare annuity to other insurance products, you don’t have much options to decrease the annuity cost. However, different insurance companies offer different options and it is good to evaluate all of them and then go for one which is most appropriate for you. Especially it is the variable annuities that involve a lot of additional fees, so it is imperative that you evaluate the policy nicely before you sign the deal. Shopping around is the best way to secure the best deal and you don’t have to worry about the time you will have to spend doing that, since you can compare quotes from different insurance companies online.
