An annuity is a contract by which an Insurance company agrees to make regular payments to someone for life, or for a fixed period of time. There are two common types of annuities, deferred and immediate.
Deferred Annuity
These are Annuities still in the accumulating or preretirement stage and not yet paying income. Assets invested in a deferred annuity accumulate value on a tax deferred basis.
Immediate Annuity
These are annuities that pay an income one payment period after the lump sum deposit. When you purchase an immediate annuity, you exchange assets for a guaranteed income stream, structured to last over your lifetime or for a fixed period of time. Annuities typically have two forms, Fixed and Variable.
Fixed Annuities
Fixed Annuities commonly pay guaranteed dollar payments for the term of the contract (usually until death).
Variable Annuities*
Contracts issued by an insurance company where the annuity premium (a set amount of dollars) is immediately turned into units of a portfolio of securities. Upon retirement, the policyholder is paid according to accumulated units whose dollar value varies according to the performance of the portfolio. Its objective is to preserve, the purchasing value of the annuity which otherwise is subject to erosion through inflation. Variable Annuities allow you to choose from alternative portfolios. Variable Annuities offer greater investment risk and the potential for higher return than do Fixed Annuities.
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