Types of Annuities
Immediate Annuity: The owner has made one
or more payments to place assets in the annuity and the annuity is
now making monthly distributions back to the owner.
Deferred Annuity: This is an annuity that
is not yet making distributions to the owner. The owner has or is
accumulating assets in the annuity.
Investments Inside an Annuity
Fixed Annuity: An annuity, whether it is
deferred or immediate, can be invested in the general account of the
insurer. This is a fixed annuity as the insurer credits the annuity
owner's account with a fixed rate of interest each year.
Variable Annuity: An annuity, whether it is
deferred or immediate, can be invested in stock or bond investment
accounts offered by the insurer or some third party. These are called
variable annuities as the value varies with the investment performance.
Strategies
Immediate Fixed Annuity: This is the most
useful risk-reduction strategy. It is the mirror image of life insurance.
With life insurance, you pay a monthly fee and then you (your beneficiary)
will receive a lump sum if you die during the term of the insurance. With
an immediate fixed annuity, you pay a lump sum and then receive a monthly
payment until you die. You cannot outlive your income stream as it is
guaranteed by the insurance company for as long as you live. There are
several other payout options available, but the option described here is
the least expensive.
The other types of annuities listed below are more
like investments than they are risk-reducing insurance strategies. There
are regular investment strategies that tend to be more effective and
efficient than the use of these annuity products:
- Immediate Variable Annuity
- Deferred Fixed Annuity
- Deferred Variable Annuity
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