Annuity

July 30, 2009

Annuity is a term found in finance theory and it refers to a string of fixed payments that will terminate after a particular period of time. Some examples would be monthly mortgage payments, monthly insurance payments and deposits made to savings accounts. The payments or deposits of an annuity can be made at any interval of time, such as monthly, weekly, yearly or quarterly.



Fixed annuities are those that have fixed amounts that are paid. These are used mainly for investments that are low in risk such as for corporate bonds or government securities. Equity-indexed annuities are where lump sums of money are made as payment to an insurance company. Variable annuities are those used to invest in certain parts of money markets.

A life annuity will probably be the most common type of annuity today, and forms a financial contract between the issuer and the annuitant. The issuer, most commonly a life insurance company, will make a string of payments made to the buyer in exchange for immediate lump sums of payments, or a string of payments made to the company before the annuity begins. The payments that are made by the issuer to the buyer, or the annuitant, are unknown, and is usually based on the day of death of the annuitant. This is the date when the contract terminates, but only if there are no other annuitants in the contract. The remaining payments are forfeited.


Annuities have a broad appeal for most people because they provide tax-free flexibility and growth. It allows people to have a monthly income that, and it is an investment where the buyer can determine how his money is invested. The choices for investment are varied, ranging from guarantee to fixed rate to aggressive growth. It also allows the individual to decide how long the money is invested. The rate of return is just as flexible, and can be from months to years. A part of your growth, interest and principal can be taken out at any time if you wish. After the buyer’s death, the account balance that is remaining is automatically passed on to the buyers heirs.

Any limit of money can be invested in an annuity. It can be a singular lump sum amount, periodic payments, or sporadic payments. Annuities are often seen as a qualified retired plan, such as a pension, as well as a profitable investment. It can be used by a person of any age and marital status, as well by trusts and companies.



Annuities are appealing as investments to retirees or those that are intending to retire because annuities possess some distinctive characteristics. The money that is held in the policy continues to grow tax deferred. What this means is that until the buyer decides to remove the money from the annuity, the owner, or buyer, does not pay any income tax for the obtained earnings. Other forms of investments, such as a mutual fund or savings account, for example, require a taxable income be paid by the owner in that same year.

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Written by Uncle Sam · Filed Under Mortgage and Loan 

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