subject: 6 Basic Varieties Of Annuity Products For Your Insurance Needs [print this page] Deferred, Immediate, Fixed, Variable, Fix period, and Lifetime annuity, are some of the basic terms used by the insurance industry when talking about annuity.
Annuities are financial contracts between a client and an insurance company. It is a supplemental financial support policy in addition to your retirement plans. The gains and dividends of your annuity insurance are not taxed. However, the distribution of it is taxed accordingly to the rate of the client's regular income tax. Different types of annuity policies are defined and explained further below:
Deferred annuity
The annuitant or the client in a deferred annuity makes an insurance contribution over time. The contributions are given with either a fixed interest rate or with an invested account. During the accumulation phase of the annuity contributions, the capital gains and dividends will not be taxed. After a certain period of time, the client may start to claim the distribution with a given tax rate according to the annuitant's regular rate of income tax. A 10% of penalty is also added to the regular income tax rate if the insurance is claimed before its maturation. This imposition is exempted in cases of an emergency.
Immediate annuity
An immediate annuity is a policy where one lump sum of contribution is given to the insurance company. This usually happens within a month's time, wherein the claimed distribution is taxed similar to a deferred annuity. Also. take note that the amount you will receive when the annuity is distributed will depend on the option policy that you have chosen.
Fixed annuity
Annuity distributions will depend on the size of the account, the expected future inflation-adjusted returns of your account, your current age and life expectancy (according to standard life expectancy tables). Life expectancy of your spouse may also be taken into consideration in certain cases, which will be discussed later.
Fixed annuities provide a fixed amount of distributions. This option proves to be the best if you do not wish to take any risk with your income stream. On the other hand, you will not be participating in any market upsides and could potentially receive larger payouts, as your contributions will grow at a certain interest rate only.
Variable annuity
The amount of distribution that you will receive in a variable annuity depends on the size of your investment. This is the type of annuity where your account can be invested on the market. It is similar to that of a mutual fund account. You can also have a guaranteed income rider option where you are guaranteed of a certain amount to claim. The performance of your investment account will determine whether you will receive a larger or lower payout.
Fix period annuity
A fixed period annuity is a policy where you can choose a certain maturation time for you to receive the annuity distributions. If the client died earlier than the given time of maturation, then the beneficiaries or dependent of the client will receive the distribution until the policy ends.
Lifetime annuity
Lifetime annuity is a lifetime income. The client will receive the annuity distribution until he or she dies. You can also extend your annuity distribution to your spouse after your death with a two-life annuity. This will allow your spouse to receive payments until his or her death.
To have an annuity insurance is an efficient investment plan. It will provide you the comfort an support with the other benefits you will receive upon retirement. It will prevent you from all the financial worries many people experience right after retirement. Choose what's best for you and and your family.
by: Jacob Schiffer
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