General Information about Annuities
While some people invest in stocks, bonds or mutual funds, some prefer to invest in annuities. Investing in an annuity has advantages as well as disadvantages. Some people say that it is safer than investing in stocks and most other investments while some others disagree. Let’s first understand the annuity definition. An annuity is an insurance company’s product. It is a contract between you and the insurance company. You basically give the insurance company money and the insurance company will, in turn, pay out income to you sometime in the future. Annuity payments are usually spread over a long period of time. The money you contributed in the annuity may accumulate tax deferred which means your contribution is not taxed until you withdraw your money.
Not all companies offer the same types of annuities. Some investors like to invest in fixed annuities, some prefer variable annuities and some decide to invest in an annuity index. As with all investments, there are some risks associated with investing in different types of annuities. The higher the level of risk you accept, the more your annuity money will grow if the market is not down and your annuity investments are doing well. However, some people invest in annuities because they want to invest in anything that is safer than stocks or mutual funds, hope to get the tax benefits and like the various guarantees that the insurance companies throw in.
The income you are going to receive from your annuity can be in a single, lump sump payment, monthly payments, quarterly payments or yearly payments. You will have a say in how large each payment will be or how long you want to receive payments for. Some people want to receive payments for life whereas others may prefer receiving large payments for over less time. While payments are guaranteed to a certain extent, there are many expenses you will have to pay to the insurance company in exchange for the guarantees they give. This is the key reason why many people think that annuities are expensive investments.
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