An annuity is a product which can provide you with an income
for as long as you live.
There are two types of annuities:
The first is when you pay a lump sum to a life insurance
company, and they pay it out to you right away in periodic
installments. This type is known as an immediate annuity
- the payments to you start immediately. The second, and more
common, is where money paid by you is accumulated at interest
over a period of time. If you choose, the accumulated amounts
will then be paid out to you in periodic installments, usually
when you retire, in order to supplement your retirement income.
This type is known as a deferred annuity
- the payments to you are deferred for a number of years.
Currently, a deferred annuity may have tax advantages, in
that the interest credited to your funds is deferred from
current taxation. That is to say, income tax is not owed until
you start receiving distributions from the annuity. Both types
of annuities offer you certain options for receiving your
income. It is usually paid to you monthly.
The most common options are:
Life Annuity
The company will pay you an income for as long as you live.
Period Certain Annuity
The company will pay you an income for a specified amount
of time (5 years,10 years, 20 years, etc.)
Life Annuity with Period Certain
The company will pay you an income for as long as you live,
but if you die before the period certain that you choose,
the income will be paid to a survivor you designate until
the end of that period.
Joint and Survivor Annuity
The company will pay an income to you during your life, and
after your death will pay a percentage of that income (50%
or 75%, for example) to a survivor you designate during, his
or her life.
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