Annuities are future payments sold in the form of contracts by insurance firms. The sum is paid to an individual every month for the remaining days of their lives. However, there are several types of annuities to be aware of before purchasing one from an insurance company. To help you understand the many types of annuities, we’ve listed the most common ones below.
As the name implies, fixed annuities are payments made by an insurance company to its customers at a set amount. The sum cannot be changed and is provided for the rest of the client’s life or straightaway if an instant annuity is purchased. The client typically invests in reliable vehicles or acclaimed corporate bonds to profit from the annuity purchased.
Fixed annuities are an excellent choice for a client who does not want to take any risks with their monthly payments in the future. Fixed annuities have a greater chance of losing purchasing power in the future if the market experiences inflation. As a result, these are meant to be the least risky investments that would provide clients with modest returns.
The client invests their money in mutual funds with variable annuities. Variable annuities include a minor amount of risk because the returns fluctuate from fixed to more significant or lower returns based only on the performance of the assets purchased in the form of mutual funds.
Variable annuities are a good choice for professional investors who have a lot of expertise in the mutual fund market and are willing to take a risk. However, it should be noted that the customer can name a nominee on their annuity so that their spouse receives the money if they die.
A deferred annuity is a wonderful alternative if you want your money to grow to a significant sum. A deferred payment permits the annuity to collect tax-free profits until the client wants to withdraw their funds, allowing the funds to grow over time.
This process of collecting money over time has a term known as an accumulation period or accumulation phase is a period in which money is gathered to provide a more significant return to the client. Deferred annuities can be used in both fixed and variable annuities, and it is worth noting.
It’s exactly what it says by its name! An immediate annuity is when clients make a significant deposit with the insurance company and begin receiving their returns immediately. An immediate annuity, like deferred annuities, can be utilized in either fixed or variable annuities.
Before making any annuity purchase, it is necessary to understand the various forms of annuities thoroughly. We have attempted to make things as simple as possible for you in the preceding article before making any decisions and deciding what is best for you.