Let’s assume that you don’t know what an annuity is. No problem! Almost everyone knows what life insurance is, so let’s start by drawing a comparison.

 

• Life insurance protects against the risk of death, or dying too soon; if the insured person(s) die, the insurance company pays out a sum of money to one or more designated beneficiaries.

 

• An annuity is sometimes referred to as “the opposite of life insurance.” Annuities insure against the risk of life, or living too long; the insured person receives a stream of income from the insurance company that he or she cannot outlive.

 

•  With an annuity, the purchaser pays a premium to the insurance company. In exchange, he or she receives a regular stream of income payments from the insurer that begin either immediately or at some time in the future. The payment stream continues until the purchaser dies - even if that occurs at age 127½!

 

•   An annuity is one of many financial products that are available as a retirement income vehicle. You should work with a trustworthy professional when determining which of these vehicles best suits your needs and retirement goals.

 

Before making this decision, you should also consider a fundamental principle of risk:

Risk/Reward Tradeoff - A direct inverse relationship between possible risk and possible reward, which holds for a particular situation. To realize greater reward, one must generally accept a greater risk, and vice versa.

 

 

Scroll further down the page for more information on all types of annuities.

Different types of annuities

Fixed Indexed Annuities credit interest typically based on the performance

 of stock market or bond indexes. They provide limited gain potential and

are not intended to perform comparably to securities products.

What is a deferred annuity?

An insurance product whereby at least a year will elapse between when the lump sum or series of premium(s) are paid and when the annuity is transitioned into a stream of income through annuitization. Deferred annuities can be Fixed, Fixed Indexed, or Variable in nature.

 

What is an immediate annuity?

An insurance product whereby a lump sum premium is paid and the annuity is transitioned into a stream of income through annuitization within one year from the date of purchase. Immediate annuities can be Fixed, Indexed, or Variable in nature.

 

Deferred annuities typically are used as vehicles for accumulation, or building additional interest until the annuitant is ready to transition the annuity to a series of payments through a process called “annuitization.” Alternatively, an immediate annuity is often used as a vehicle for individuals who are ready for their income stream to begin, well, immediately.

 

Both deferred and immediate annuities can have their interest credited in several different ways. The two basic types of deferred and immediate annuities are Fixed and Variable. Of the Fixed variety, there are (traditional) Fixed as well as Fixed Indexed.

 

Scroll further down the page for more information on all types of annuities.

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