Annuities – A Step To Secure Life

The term annuity is a basic reference to a series or stream of payments. It has its origins in Latin in which it means a year. When taken in the context of life insurance, it can be described as a contract that you enter into with an insurance company. The insurance company agrees to make payments to you for a specified period, which usually is life long. In most cases the payments are made on a monthly basis. The recipient of the payment is also known as an annuitant.

Insurance companies offer annuities, which are sold through licensed agents.  The evaluation and licensing of the insurance company needs to have been done in your state and the same goes for agents. The insurance companies are placed under scrutiny by state insurance commissions for evidence of being in possession of reserve funds, as a means of protecting investors before any license is given to insurance companies.

In the event that an insurance company goes out of business, the other insurance companies with licenses in the same state are required to take charge of bankrupt insurers’ obligations and liabilities.

Annuity contract can have a number of variations and types. Among them, are:

• Immediate or Deferred
• Fixed or Variable
• Single Pay or Multi-payment
• Straight Life or Joint and Survivor or Cash Refund

In certain situations annuities can be of great help. There are several advantages to annuities.

Tax-Deferred Accumulation

Deposits made to an annuity are not tax deductible. Nevertheless it is not necessary for you to pay taxes on the interest earned till the time you start making withdrawals. The tax-deferral period is capable of making a significant impact on the growth of an investment.

Social Security

Social Security is shrouded in doubt about its future. Investors are therefore trying other options for the accumulation of assets. The growth potential that annuities offer ensures an additional source of retirement income apart from what Social Security provides.

Flexibility

Being among today’s most flexible savings options, an annuity allows you to deposit after-tax money or roll over qualified money to fund it. Flexibility is also tremendous during the payout phase as well.

If annuity investing is what you really desire, be sure to shop around to find the right option and the right price so that you don’t end up parting with more money than you need to.