Fundamentals Of The Annuity

Understanding of an annuity is very necessary before opting for it because little knowledge may cause financial damage to you

. Like other investment plans, an annuity is also a contract where an investor and a Insurance Company gets involved on certain terms and conditions, investors set aside a particular sum of money for a certain period of time so that it accrues bigger.

Likewise, the money that is deposited, after a certain period of time gets accumulated and it does not put any liability for tax. This is the preliminary stage of Annuitization. The following stage is the withdrawal stage where you are required to harvest the benefits of the contract in the form of Annuity withdrawals. Of course, this is a special Contract, which is understood by only those people who want to build a bigger financial background for themselves during their retirement age.

If you have opted Annuity then in the initial stage, you can pay the whole amount all together to the respective Insurance Company or you can also choose to pay it in installments. It entirely depends upon your choice and capability to pay. However, the rate of return, you are needed to fix in advance; either you want a fixed rate of return or a variable rate of return.

The scheme that provides a fixed rate of interest is known as Fixed Annuity and the scheme that provides a variable rate of Interest is known as a Variable Annuity. The variable annuity is risky because the amount you will receive after the maturity entirely depends upon the investment you made as per the market condition.

Moreover, any Annuity you opt, you are suggested to wait until it completes its time period. In other words, you should withdraw money only when the Annuity is matured. If you do not do so then possibly you will lose sufficient amount as penalty. You are requested to take precaution, in order to enjoy your Annuity to the fullest.

by: Tony

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