What Are the Major Types of Annuities?
Did you know that the annuities sold by insurance companies come in different types? These contracts typically promise buyers regular installments of future payouts that are mostly given on a monthly basis for the rest of their lives. Any private investment management 10924 professional will tell you that each type of annuity is specially designed to serve a specific purpose.
The Major Types of Annuities
With a fixed annuity, the insurer guarantees an exact payment at some future date. This payment can either be made right away or after a few decades. In most cases, the insurer manages to deliver this return by investing money in highly rated corporate bonds and U.S. Treasury securities.
Since a fixed annuity is known to be a safer and more predictable option, you shouldn’t expect these investments to deliver spectacular returns. Additionally, the purchasing power of payouts made on a fixed annuity can be lost over the years because of inflation. However, you can choose to pay extra for a fixed annuity that considers and takes inflation into account.
Do you have a lower tolerance for risk? If you don’t intend to take your chances with your regular monthly payouts, consider buying a fixed annuity.
With this type of annuity, the insurance company invests in a portfolio that consists of mutual funds you’ve chosen. The growth of the account and the size of the payout you’ll receive are determined by the performance of those funds. The schedule of payouts can either be fixed or they can also vary depending on the performance of the account.
If you choose to purchase variable annuities, you’ll want to generate bigger profits based on your willingness to handle a certain degree of risk.
An indexed annuity or an equity-indexed annuity share the characteristics of both fixed and variable annuities. Moreover, it aims to balance the rewards by carrying lower risks compared to variable annuities and higher income potential compared to fixed annuities.
Although the interest rate won’t go below a present amount, it’s important to note that the rate is tied to a specific index which can potentially go higher than a fixed annuity. Unlike fixed annuities, indexed annuities have higher fees and costs, and it involves the use of complicated methods for calculating interest.
For these reasons, indexed annuities can be an ideal choice if you’re a retiree or a pre-retiree who wants to conservatively take part in potential market appreciation with downside principal protection.
Choosing a deferred annuity allows you to receive premiums and investment changes for payouts at some point in the future. For instance, payments may start when you retire decades from now. Before this happens, your investment grows on a tax-deferred basis.
If you want the payouts to begin as soon as you make a lump sum payment to your insurance provider, you’ll want to choose an immediate annuity. For instance, if your income is monthly, you’ll receive the first payment a month after you bought the immediate annuity.
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The team of financial experts at 1879 Advisors understands that these types of annuities can be complicated. Allow us to shed some light on this investment product today. Get in touch with us now to schedule your appointment.