Some say that annuities are classic insurance policies. Some others insist that this is the pure investment product. As usual, the truth lies between and in my opinion, annuities incorporate both the insurance and the investment based parts of agreement.
In fact, annuities are an interesting alternative to existing traditional investment products. Annuity is an insurance-based contract with option for lifetime income. With tax-deferred accumulation, you will receive competitive rate of return on accumulated capital.
Basically, there are two main types of annuities: Deffered Annuity and Immediate Annuity.
The most popular are so-called advanced life deferred annuities (shortly saying ALDAs), which can help you solve retirement planning problem by acting as a kind of insurance mechanism against long life. Some financial advisers call this type of contract as longevity insurance.
Deffered annuity is known for its accumulation phase when you pay premiums to insurance company on the regular basis. When you reach agreed age, payout phase is in charge and you will receive regular income, so needed in the older age.
The biggest concern of deferred annuities is the risk of early death. However, you can insure yourself against this scenario. The most popular strategy is to obtain an option called “death benefit”. Shortly saying, beneficent get funds from the policy if he/she should pass on before the benefits start.
There is also so-called cash refund option which pays your beneficiaries the balance of your account if you die in the midst of receiving benefits.
Immediate annuities provide income over an agreed period of time or for the duration of the annuitant's lifespan. Of course, the income amount is determined by few factors, like the total premium amount, the annuitant's current age, and the rate of interest used by the insurance company.
You should calculate and strictly determine whether an annuity product is a good match for your given retirement goals and objectives. Annuity should become a proper part of your whole retirement plan.
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Life annuity may be regarded as an effective financial instrument and a monetary bond.
The annuitant makes contributions until a specified date and then in return receive regular payments from the insurance company until the contract dissolves.
When pensions, Social Security, and other savings aren't enough to maintain your lifestyle in retirement, a variable annuity can help grow and protect your retirement income.
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