Annuities are issued by Insurance companies as a type of investment contract. They use Insurance agents to offer these contracts to investors, who pay into the annuities. After a set period of time, the investor gets a return on his investment. When the annuity is fixed, the principle is guaranteed. Annuities are a safe way of investing to accumulate wealth, they are tax-friendly and are often used as retirement savings plans.

If you decide on fixed annuities, it can either be funded with one lump sum payment or with a series of smaller payments over the course of time. The returns from traditional fixed annuities are guaranteed to increase as they do not depend on increases in the stock market or other equity investments. There is a steady return of interest and also a steady future incom to the investor from the annuity.

Annuities can be structured in a number of ways; varying accumulation period, length of income payments and other factors. Investors get the security of a fixed interest rate when they choose a “fixed annuity” option. Issuing insurance companies guarantee a minimum interest rate for a set period of time with a fixed annuity option. Most of the companies also pay a minimum benefit. Since the payout is fixed over a period of time, investors are aware of the expected income over the payout period.

Fixed annuities can be paid out in various ways: for one purchased with a lump sum payment, fixed monthly returns can immediatly be paid out to the investor. The buyer receives a guaranteed, regular flow of income from his lump sum investment.

When investing in deferred payment annuities, you may choose to deposit a lump sum at the beginning which builds interest over time. Or, you may deposit money into your annuity over the course of time, and your returns will be paid out to you after a set period. This type of fixed annuity is commonly used by investors as a savings plan for retirement. The annuity value continues to grow and compound while in deferral. When additional income is needed, the investor can choose a payout structure to suit his needs.

- Gary Denison

This entry was posted on Saturday, March 27th, 2010 at 4:47 pm and is filed under Finance. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.