Annuities

Annuities are contracts offered by insurance companies, that offer different guarantees and features that can not be found in other types of saving and investment options.  Annuity products are based on the claims paying ability of the issuer and issuing company.

 

When used correctly, annuities can offer all or some of the following benefits:

  • Guarantee of principal 
  • Guaranteed income for life
  • Tax-deferred growth
  • Protection from creditors
  • Probate avoidance
  • Enhanced death benefit options

 

There are all different types of annuities available to people and it is important to know the differences when making a decision on whether or not to purchase an annuity. An annuity is typically either set up as an immediate or a deferred annuity. The main differences are:

  • Immediate annuity- The person puts in a lump-sum of money and in return, the annuity provides income either for a certain length of time or can be used to provide an income stream guaranteed to last for as long as the annuitant is alive. This type of annuity is very effective when used for income planning. It is often very important for a person to know how much income he or she will have on a consistent basis, and an immediate annuity can provide a guaranteed, predictable amount.
  • Deferred annuity- Like a savings plan or investment, the annuity is left to grow, usually tax-deferred, until a later time. At the end of the contract period, the person can take all or part of his money out, or can turn the annuity into an income stream, similar to an immediate annuity.

Within the categories of immediate and deferred annuities, the types of annuities can be broken down even further, based on the way gains and losses are credited to the account. The types of deferred annuities are:

  • Variable annuity*- With a variable annuity, you choose between different investment sub-accounts. The options for sub-accounts will vary based on the company, but usually contain stock and bond fund options, or fixed account options. Your account value can go up and down based on the performance of the sub-accounts. Many variable annuities allow for the addition of riders that can guarantee a death benefit, or an income benefit. These riders can be added to add predictability, but come at a cost (the cost can be worth the guarantees, if guarantees are needed), so make sure you understand what fees you are paying.
  • Fixed Annuities- There are three main types of fixed annuities. The first two are the ones that most people think of when they hear fixed annuities, a multi-year guaranteed annuity and a traditional annuity. With a multi-year guarantee annuity, you know in advance what your annuity will earn during the term. For example, you might find a 5-year fixed annuity paying 3% per year. You know that you are getting 3% per year for 5 years. It could also be that that you find one that gives you a higher rate in the first year or two, and then a guaranteed rate locked in after that. The other type of fixed annuities that most people know about, is the type where you get an interest rate that adjusts with the economy and interest rates in general. The annuities usually have the nice feature of having a minimum guaranteed rate. 
  • Index Annuity- An index annuity is the third type of fixed annuity. Your earnings are linked to particular index and how much you earn in your annuity depends on how the index does. 

Be aware that you can lose principal in most annuities if you withdrawal your money before your term is up, so these programs are not good for people who are going to need full access to their money before the end of the surrender charge period.

We have access to over 100 different annuity programs so we can find the one that best fits your needs. We will ask a lot of questions in order to find the annuity or annuities that will help you meet your financial goals. Give us a call at 1-888-527-0872 if you would like to see how an annuity might help you.