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Knowledge About Annuities Helps You Make Better Investment Decisions

An annuity is an investment that guarantees to pay you a certain amount for a certain period of time

. It can benefit you in several ways, comes in different type that are computed using different factors, and is taxed in different ways.

The annuity is now a well-known insurance investment option for a lot of middle-aged people. It should not hinder you from making the best choices for your future, though understanding investment terms, including annuity, can be very confusing. Here is a simple overview of annuity and how it works:

Annuity explained

A popular type of insurance investment is an annuity, which guarantees periodic payment returns in a specified year. You will usually receive your annual returns throughout your lifetime or for a certain period of time. You can pay for the annuity in spot cash or in long-term, affordable cash payments.


How annuity benefits you

You could gain a lot from an annuity. First, it can be a great source of funds when you are planning for your retirement. Most annuities kick in at 60 for your retirement. You will still receive periodic amounts from your annuity, even if you don't have a job. For example, a college fund for your child who is currently five years old, is what you can also use this type of investment to answer your long-term goals. Taxes are deferred with annuities. This is because your investment earnings will be taxed only when the returns are paid out. Finally, annuities can be very accommodating. Your goals can be matched with a particular annuity type that is offered through an investment company by an insurance agent who, through Annuity Leads, may have read your information and conditions.

Types of Annuity

Depending on your annual wages, your premium payment terms, the conditions of your returns payment, and other annuity variations, there are different types of annuities.

Depending on premium payment terms. Annuities are available in two different forms: a single premium or a flexible premium. You pay for your annuity in one single payment, commonly known as a lump sum, with single premium annuity. The great thing about flexible premium annuities is that they cost less in the short term.

Your annual earnings is going to be the deciding factor for the outcome. You can buy a variable annuity or a fixed annuity. Your principal and interest can be jeopardized by a fixed annuity that promises a fixed amount of returns annually. These annuities are usually invested in government securities or other conservative types of investments. Annuities invested in more flexible investments, such as mutual funds, are variable annuities, alternatively. If you choose to purchase a variable annuity then you are not guaranteed payments on any sort of regular basis.

Based on the logistics of your returns funding. Your choices in the payment of returns are: life annuity or term annuity. For a certain period of time, regular payments are guaranteed by term annuities. In most term annuity policies, if you pass away during your payment period, your beneficiary is entitled to receive the remaining returns. You are guaranteed payment for the rest of your life with life annuity, but after you pass away payment shall be stopped and no refund will be issued.

Other variations. The annuity fit for married couples, is another type of annuity known as joint annuity. It is structured in a way that if one you passes, the surviving spouse continually receives the regular payment returns. Where you receive fixed return payments for a fixed period , term certain is also another type of annuity that combines both term annuity and fixed annuity.

The variables having an effect on annuity payments

Four major factors that contribute to the amount of payment returns you get include your principal, your interest earnings, demographics, and the term of payment. The higher the amount of your principal and your interest earnings, the higher the payment returns. One big factor is demographics. For instance, if you live in a state where life expectancy is higher, you may receive a smaller amount of periodic returns, particularly with life annuities. Finally, if the period of payment is longer, you may receive smaller annuity payments compared to shorter or term annuities.


How you pay applicable taxes

Deferred taxation makes annuities very attractive. Only when you are getting paid returns are you responsible for paying taxes on it. There are both non-prescribed and prescribed annuities. Non-prescribed annuities allow for payment of taxes in a gradually decreasing manner until taxes reach zero, while prescribed annuities allow for payment of taxes to be distributed evenly throughout the policy's term.

Make sure that you determine your future needs and condition best when planning to use an annuity. Compare quotes from different insurance or investment companies in order to get the best value from your investment.

by: danica
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