These are basically products from life insurance firms. They have some features of an insurance owner, but also have features of a savings or investment product . While most people purchase life insurance policies to protect their relatives in case they die, they buy annuities to protect their finances while they are alive.
Reasons To Buy
1. People require to save for a medium to long term aim.
2. People require to insure they have income for a set length of time.
What makes these products a lovely device to save for a long term aim?
Tax Deferred Savings – This is of the largest advantages. Gains grow without being taxed. And if used as a retirement planning device, payments may be tax advantaged . So even if returns are lower than a riskier alternative, when you think about the tax advantages, an annuity may very well help you save more money. For more help search financial planning.
Fixed annuities offer a guaranteed return. They may have a set rate of interest, or they may be pegged to some index like the S&P 500. Either way, there will usually be a guaranteed maximum return. That could be a couple percent, or assurance that the investor will seldom have a negative year when the stock market goes down. So even in the event that they do not earn as much as a mutual fund in the coursework of lovely years, the assurance of no negative returns can make them better over the span of several years.
Variable annuities are different, and they can be dicy. For the chance of getting higher returns, the owner takes the risk of losing money in down years. They still have the tax deferred advantage though.
Immediate – These are bought with a lump a number of money. The contract will specify how long they are guaranteed to pay out. The lump sum could come from inherited money or a retirement payout. For more help search FinLit.
Deferred – These could be bought with a lump sum, or they could be built up with payments made up over a period of years. This might be a kind of retirement savings vehicle, or perhaps a device to save for college or a home.
A buyer can select a variety of payout option. Some products are actually flexible . In fact some people take some additional money and put it in to a flexible payout annuity so it can make gains and serve as an emergency stash. But most think of payouts taken for a guaranteed period. Lifetime, ten years, or Joint Survivorship may be examples of periods could select.