What is an Annuity?
An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors who want to receive a steady income stream in retirement.
Reasons for Buying Fixed Annuities
Annuities can provide an incredible safety net. Older investors are particularly drawn to annuities as the threat of outliving their money from retirement accounts is a significant risk. Annuities can provide a guaranteed income stream for life, along with guarantee of principal. Think of the annuity as your basement. Laying that foundation will guarantee you have the money to make sure living expenses are met.
In the past, people believed that annuities were only for wealthy individuals or families with a need to either shelter assets or ensure that large amounts of income would be guaranteed. But, alas, insurance companies are successfully marketing annuity products to middle and lower class families who also need to ensure that income continues in retirement. This is especially true as life expectancy for both men and women has increased dramatically of the last 40 years. Annuities are really the only investments that provide options for guaranteed income, a guaranteed return or a guarantee of the Principal.
There are several variations and countless products to choose from, however they all share these common traits:
Tax Deferred Growth: The taxes on the growth of an annuity are deferred. This in essence gives you a better rate of return than some other investment products, because the income that you would have paid in taxes is still working for you.
Principal Guarantees: The safety offered with fixed annuities is perhaps the most important feature to most consumers. As long as you follow the contract rules, and the insurance company remains in good standing, the fund put into an annuity are never at risk.
Fixed, Competitive Interest Rates: Typically speaking, fixed annuities usually offer a higher interest rate than similar products, such as a bank CD or a money market account.
Types of Fixed Annuities
Traditional Fixed Annuity
The traditional fixed annuity is structured very similarly to a bank CD (certificate of deposit). The premium grows at a guaranteed fixed interest rate for a set amount of time. The length of the contract can range anywhere from one year, to as long as 15 years.
Fixed Indexed Annuities / Equity Indexed Annuities
Fixed Indexed Annuities, also referred to as Equity Indexed Annuities, provide the same principal guarantees of a traditional fixed annuity, however the rate of return is based on the performance of an index, such as the S&P 500. The insurance company will credit the account with a portion of the indexes upside growth, while offering protection against downturns in the market.
Immediate Annuities convert a lump sum amount of money into guaranteed income to the annuitant as soon as the annuity is purchased. The annuitant may choose from a lifetime income stream, which provided the income for life, or a set time frame (usually 5, 10 or 20 years).
Common Annuity Terms
The surrender charge of an annuity is the penalty or fee applied to the account if it canceled early. The most common structure is a decreasing surrender charge, where each year the surrender charge becomes smaller, until it is gone completely by the end of the contract length.
Premium bonus is a term used to describe a feature found on many annuities, in which the insurance company essentially adds 'extra' money to the account during the first year. The bonus can be in the form of a higher first year interest rate, or a partial premium match by the insurance company.
The basic building block of financial planning is protection. By getting enough life insurance you are protecting your loved ones so that the money is there to continue their lives without disruption. It has been said that getting life insurance is an honorable and selfless act and that is so. You are taking responsibility for the financial future of people you love. Congratulations on this first step and it is our goal to help you find the most efficient and economical method in building one of the building blocks of sound financial planning – life insurance. Find the best life insurance rates by requesting a quick quote today. Use the following information to help with your decision.
There are many types of life insurance to fit individual needs and circumstance. The following are some of the basic types of life insurance available.
The simplest form of insurance. You purchase coverage for a specific price for a specified period. If you die during that time, your beneficiary receives the value of the policy. There is no investment component.
Similar to term, but you purchase the policy to cover your "whole life" not just a set period. Premiums remain level throughout the life of the policy, and the company invests at least a portion of your premiums. Some firms share investment proceeds with policyholders in the form of a dividend. Many companies will offer "a relatively low guaranteed rate of return," but in reality pay at a rate in excess of the guarantee.
You decide how much you want to put in over and above a minimum premium. The company chooses the investment vehicle, which is generally restricted to bonds and mortgages. The investment and the returns go into a cash-value account, which you can use against premiums or allow to build.
With some policies, sometimes called Type I or Type A, the cash account goes toward the face value of the policy on the death of the policyholder.
With a second variety, sometimes called Type II or Type B, the beneficiary receives the face value of the policy plus all or most of the cash account.
While Type II is meant to provide a partial hedge against inflation, it demands higher premiums as you get older than Type I.
Final Expense Plans
Burial Insurance, also known as Final Expense Life Insurance, is affordable and gives your loved ones peace of mind. Don't wait another day to make this important decision. If you are between ages of 50 & 85...please contact us today for your FREE quote. We work to get you the best price. We provide all the information you need on Burial Insurance & Final Expense Life Insurance so you can make an informed decision. Please take a moment to request a quote today. We look forward to serving you.
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