subject: The Fundamental Concept Of Annuity [print this page] There are several companies that offer various investing options with guaranteed returns; among these options, annuity is one of the best modes of investment for the old age of life or insurance for the rest of the life. However, your money is the most valuable because it not only re-counts your present but also plans your future. So, before investing money anywhere, it is necessary for you to have the basic knowledge about the return of your investment and also about the Institution/Company where you are investing.
Annuity is a financial product offered by financial companies. It is designed in such a manner that respective company accepts funds from an individual and then allows that fund to grow and upon Annuitization; pay out a stream of payments to that particular individual. Normally, annuity is used by an individual as a means of securing a steady cash flow for retirement years. It works in two Phases i.e.
Accumulation phase In this phase, individuals make investment of their money with an insurance or other relevant financial companies over a fixed period of time or in a lump sum amount.
Annuitization phase After completion of the maturity, individuals are eligible to withdraw regular payments either monthly or annually from the respective companies till death.
The important thing about the annuity is The money, you invest for your annuity grows up as tax-deferred; it means, your income that you are investing is not taxable. Nevertheless, once you begin to receive payments, your incomes become taxable. If you die before the Annuitization then your beneficiary will pay the tax on the beneficiary amount.
The ideal buyers of annuity are generally 55+ aged; the reason is there is provision of 10 percent penalty for the investor, one who withdraws money before its maturity i.e. 59. However, it is exempted if the investor dies or is disabled.
