subject: What To Know About An Annuity [print this page] The term annuity is a financial theory to fixed payments that will be terminated over a specific period of time. The value of the money increases as the period of the investment is prolonged. Common examples of these are home mortgages, monthly insurance payments and savings accounts based on set periods. Investors prefer this terms of investment as it provides a steady stream of income.
The amount of money that will be invested into the plan varies from one plan to the other. A person who wishes to invest a large sum at once is able to do so and those who wish to pay money into the investment in intervals can do so by means of smaller payments. When the time has reached for the money to be paid out, it provides a comfortable supplement at old age or when one wishes to use the money on a large investment later on in life.
It should be mentioned that with an annuity one will not be able to receive the full saved amount at once. When the end period has elapsed, one will receive a guaranteed amount of this money on a monthly basis until death. Some companies offer a certain percentage to be paid as a once off amount, but in all cases, monthly payments will take place.
The two most common plans are the immediate and the deferred plans. Immediate annuities are when large sums of money are paid once off. The holder of this policy will then receive monthly payments and the remaining balance will accrue excellent interest.
With the deferred plan one pays the money into the plan over a period of time and only when a specified end date is reach does one receive monthly payments. When the end date is reached, the remaining amount does not accrue any interest.
These financial plans carry large tax benefits. They are usually tax free until the money starts to be withdrawn. Another benefit is that payments have a guaranteed rate of return. On the downside when one wishes to withdraw the money prior to the end period, there are penalties associated to the withdrawals. These penalty rates are high for the initial years of the investment and then as the plan matures the penalty rates go down.
Fees associated with these financial investments are higher than those of other investments. Across industries it is about two to three percent higher than those of other investments. Before deciding to invest in this manner one has to be sure that the return of investment will cover the fees over the life time of the plan.
When one has made a decision to place money into this form of saving, one can approach a reputable insurance company and they will work out the rates and end periods. They will also be able to state the penalty clauses in case of early withdrawals as well as the events of cancellations. They are equipped to give the best advice and also suggest the most suitable investment periods of the annuity.
