Annuities can be confusing and many would-be investors offer
confuse annuities with life insurance. An annuity is an
investment contract or policy between an individual and a life
insurance company. Simply put, the investor buys life insurance
in case they die too early and he purchases an annuity in the event
that he lives too long. While that may seem silly, the fact
remains that many individuals arenít financially prepared for the years
following retirement.
Annuities can help.
Different needs and budgets dictate the purchase of different varieties
of annuities. If you need income now, you should consider
investing in an immediate annuity. In this instance, the investor
pays the insurer a lump sum of money in exchange for receiving income
for a set period of time or for as long as he/she lives. Youíll usually
start receiving payments immediately after transferring funds into this
type of annuity.
If youíre looking for a long-term retirement savings vehicle, the
deferred annuity should be your financial tool of choice.
Deferred annuities build savings on a tax-deferred basis.
Youíll also need to decide whether you prefer a fixed-rate or a
variable annuity. Those who prefer not to take a risk with their
dollars may choose the former, which provides a stable and guaranteed
rate of return. The latter involves investing your money in the
stock or bond market, therefore assuming a higher financial risk in
favor of a more profitable rate of return. Younger investors who
have more time to save often choose this type of annuity.
Annuities can be purchased through insurance agents, financial
planners, and banks. However, only life insurance companies issue the
policies. If youíre shopping for this type of investment, be sure
to make your purchase through someone whoís well-versed in the
specifics of these investments and will take the time to speak with you
so that he/she may recommend the right annuity for your needs.
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