Understanding Fixed & Variable Annuities
Contracts entered into between insurance companies and individuals are called annuities. The main purpose being providing a fixed monthly income. The individual pays the insurance company in several amounts over a time frame or then a single one-time payment in exchange for this.
If you are planning your retirement portfolio, you must consider annuities since they are a very secure and safe financial option. On the various annuity options there is abundant information that will help you in your investment decision for a secured future.
Annuities are a kind of investment in which the investor is assured of a fixed amount over a fixed time frame (mostly for lifetime). Most of the times the payment is on a monthly basis. However, you can select fixed annuities or variable annuities.
Variable Annuities:
Payment options are of two kinds: immediate in which the payment is disbursed regularly on a month-wise payment scheme or deferred where investment is held for a long time period.
The option of variable annuity investment offers the investor a variety of choices. The various choices available to you include money market instruments, bonds, stocks or a blend of all. Your investment value will rely on the kind of option you select for investment.
Variable annuity may be invested in mutual funds but should not be considered a mutual fund because the investor will receive payments for the rest of the individual’s life or the life of the beneficiary.
There is a death benefit in case of a variable annuity. This promises a specific amount will be paid to the investor’s beneficiary in the event that the investor dies. The other advantage of investing in variable annuity is tax deferral. You are free from paying any income tax on various investment gains and income you earn till the point of time that you start to receive annuity payments.
Fixed Annuities:
This type of investment guarantees the principal amount which can never decline. The company will announce on an annual basis the fixed payment that will be made. Interest gets added to your investment every year and the longer the term, the higher will be the interest paid to you.
The interest earned on fixed annuity is deferred from tax throughout till it stays in your account. It is permissible for you to withdraw up to 10% of balance every year and in case you withdraw more than that there will be surrender charges applied. You have choices of lock in rate or multi year rate or annual rate that will be assured for the whole period.
Before you decide on the annuity you wish to go for, thoroughly research all fees related to the investment. Surrender charges, penalty charges and annual charges are some of the many charges that could be attached.
Let us conclude this article by giving you an important tip that you should bear in mind before investing in variable annuity. Never invest a sum greater than $100000 with one insurer. Note that the state guarantee fund will cover you if there is folding up of the company to a maximum of $100000.
There are many reasons to invest in annuities, from supplementing income to using for your retirement: http://www.annuities2day.info .
