Life Annuity Options Offered By Insurance Companies

Life annuity is a contract-based insurance between the insurance company (the insurer) and the party paying the insurance company (the insured)

. If you choose to sign up for a life annuity plan with an insurance company, you agree to pay them a fixed amount of money either immediately or over a period of time to ensure a series of guaranteed payments over a defined span of time. Life annuity plans are extremely useful as they promise returns for life and offer the insured a wide array of options to invest their money in. They're also safe and can be chosen depending on the financial status of the person signing up for the life annuity.

Apart from the insurance company and the party that is insured, there are two other entities that are a part of each and every life annuity contract. These are the beneficiary and the annuitant. More often than not, the person who owns the policy or the policy purchaser declares themselves as the annuitant. An annuitant is the individual whose age decides the measuring life of the contract. After the death of the purchaser, the entire investment is transferred to the beneficiary or the beneficiaries chosen by the purchaser of the policy.

Annuities have a tax-deferred status and there is no upper limit on the yearly investment amount that can be contributed to ensure that they remain active. They score over qualified plans and Individual Retirement Accounts (IRAs) that have a fixed annual limit. Life annuity contracts, when combined with a good life insurance policy are one of the best ways of ensuring a good Return On Investment (ROI). They help maximize potential financial returns on large investments and can also be used to take care of the financial requirements during retirement. These contracts are known as retirement annuities. Annuities act as effective sources of supplemental income along with pension schemes and social security benefits.

There are two principal types of annuities that are sold by almost all insurance companies. These are fixed annuities and indexed annuities. While a fixed annuity accumulates funds based only on the interest rate driven earnings, indexed annuities are a combination of fixed and variable annuities. Another difference is that ending a fixed annuity contract before the surrender period results in penalty while indexed annuities give the insured party an option of withdrawing a fixed percentage of the total investment before the surrender period.

by: Carina Smith

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