A Brief Overview Of Annuities

Investing money in annuity is the best way of planning the retirement

. It is also effective for the future financial need like the college fee of the son/daughter. What makes this a better choice is it being exempted from the tax during the time of investment. A brief knowledge of its types, payment modes etc are important before committing to one. It is very important to know what different annuities demand so that one can decide upon the most suitable one.

Let us begin with its definition.

Definition:

What is an annuity? This is probably the first question that comes to mind when someone receives it as a suggestion for the first time. Technically it is agreement or a contract, to be precise, which is made usually with an insurance company or any investment company. It gives a fixed income for an investment. The investment mode varies from a single time investment to the investment being made for a varied period of time.

Normally one cant withdraw the money till the age of over 59 1/2 years. If a person withdraws than he has to bear surrender charges and also the tax will be applicable, which otherwise doesnt apply.

Tax penalties include 10 percent of the investment and also, the regular tax rate on the earnings is applicable. The investment holding company, which is usually the insurance company, applies the surrender charges. However, the what is an annuity involved in funding the college fees of the children are exempted from these penalties.

Types of Annuities:

Mostly the annuities vary with type of payment or the type of return. Consequently we have:

SINGLE PREMIUM: Here onetime payment is made as a lump sum.

FLEXIBLE PREMIUM: It demands a minimum investment first and the rest investment in installments over the investment period.

FIXED: This is considered as a more conservative sort of investment. It is more like a bond. Here the invested amount, also called the principle amount, is guaranteed plus a minimal rate of interest.

VARIABLE: Here the investment amount is invested in the mutual bonds. Principle amount is not guaranteed here but the amount to be paid back is determined by the earnings of the invested amount.

These provide a lot of options to the investors who in return choose the one that best suits their interest. You have the option to choose how the returns should be made to you as well. You can choose some fixed amount that continues till the whole amount is used up. One may chose a fixed period of time for which the returns should be given or one may go for the life time payment-makes or the returns till the time of death. In case of installment refund if the person dies rest of the amount is paid to the survivors. Any choice is a matter of personal need.

by: Elissa Joyce

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