INTRODUCTION
You’re obviously here for a reason…
Annuities have been called “complex” by some. Actually, when in front of an expert on these retirement savings products, it’s pretty simple! Now— let’s assume that you don’t know what an annuity is. No worries. Most everyone knows what life insurance is, so let’s just start by making a comparison to life insurance.
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 living too long; the insured person receives a stream of income they cannot outlive from the insurance company or a safe money solution to reduce risk inside of a portfolio. Some refer to this as a "Bond Alternative".
With an annuity, the purchaser invests X amount either once or multiple amounts spread out. In exchange, they receive a few benefits. The first benefit is safety of that asset from any future losses, secondly they receive the ability for growth through fixed interest rates or index options. Thirdly they receive 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 127 ½
What is a deferred annuity?
An insurance product whereby at least a year will elapse between when the account holder decides to receive a payment or series of payments.
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.
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, or until passed on to their beneficiaries.
Have you heard of an indexed annuity?
Indexed Annuities provide limited gain potential and are not intended to perform comparably to securities products although they have gotten close as of late. Indexed Annuities merely credit interest based on the performance of stock market, commodities, or bond index. Don’t be confused; these annuities do not allow you to invest directly in the stock market, which is a good thing. They do, however, provide the opportunity to outpace fixed money instruments such as Certificates of Deposit (CDs), Bonds, or Fixed Annuities.
What is a Fixed Annuity (FA)?
A contract issued by an insurance company that guarantees a minimum interest rate with a stated rate of excess interest credited, which is determined by the performance of the insurer’s general account. Multi-Year Guaranteed Annuities (MYGAs), a type of Fixed Annuity, guarantee a minimum interest rate for more than a one-year period; this rate is also determined by the performance of the insurer’s general account. A Fixed Annuity is considered a low risk/low return annuity product.
What is an Indexed Annuity (IA)?
A contract issued by an insurance company that guarantees a minimum interest rate of zero, where crediting of any excess interest is determined by the performance of an external index, such as the Standard and Poor’s 500® index. An Indexed Annuity is considered a moderate risk/moderate return annuity product.
What is a Variable Annuity (VA)?
A contract issued by an insurance company that has no minimum guaranteed interest rate, where crediting of any excess interest is determined by the performance of underlying investment choices that the annuity purchaser selects. A Variable Annuity is considered a high risk/high return annuity product.
Data provided by Wink, Inc.
© 2022 Wink, Inc. All Rights Reserved.
https://www.winkintel.com/insurance-basics/annuities/
