What is an Annuity?
• An annuity is a financial instrument that provides fixed payments over a specified period of time. An annuity provides a distribution of finances, earned on an investment in a fixed schedule; the payments are allocated to the holder of the annuity in quarterly, monthly, biannually or annually installments.
• An annuity is typically used as part of a retirement plan; the instrument is a fixed-income investment that ensures stable income once the holder stops working. The most common form of an annuity is a pension fund; while the retiree was working, the individual paid a portion of his or her salary into a pension fund, which is invested. Once the holder retires, the return on the investment takes the form of an annuity and is disbursed periodically to the individual.
Types of Annuities:
• In general, there are four different types of annuities: traditional, equity-indexed, fixed and variable. Each style of annuity will fluctuate in regards to the delivery of payment, the financing options and the investment style.
What is a Variable Annuity?
• A variable annuity is a formal contract between you and an insurance company; under this contract, the insurance provider agrees to distribute periodic payments to you, beginning on a specific date in the future. A variable annuity plan is purchased through the insurance company after you have provided an agent with a lump sum or series of payments.
• The primary difference between a variable annuity and a fixed annuity is the manner and amount in which payments are distributed to you. As the name suggests, the variable annuity does not possess fixed payments; the amount of funds delivered will fluctuate based on the time period that you select for receiving payments and the performance of the underlying funds.
• A variable annuity offers a holder a number of investment options; the value of your annuity plan will depend on the performance of the investment options you choose. The investment options in a variable annuity plan are typically mutual funds, which in turn, will invest in stocks, bonds, money market funds or a combination of the three.
• A variable annuity will allow you to receive periodic payments for the rest of your life; typically the variable annuity is enacted once you retire.
• A variable annuity is also attached with a death benefit, meaning if you die before the insurer has begun making payments, your beneficiary will be granted a specific amount of the annuity.
How is an Annuity Purchased?
• = The majority of holders work with firms to set up an annuity plan. The holder can either invest in installments or purchase an annuity with a lump sum of cash. Dissimilar to life insurance products, an annuity plan does not require a physical examination and is only used to provide funds for the individual while he or she is alive. When the annuity is affirmed, the holder signs a contract to outline the specific terms of the policy, including the length of time that it covers and whether or not the payments will be fixed.