4 Basic Things You Need to Know About Annuity for Better Investment Decisions

An annuity is an insurance policy in which the money you pay is invested by the insurance company, and after certain period of time, the income made from the investment is paid to you. Some benefits of an annuity are it provides you with lifetime income, offers some inflation protection, it combines insurance and savings, it guarantees returns, and it offers better tax savings. However, investors should always bear in mind that it does not maximize your investment, it requires a large sum of money to invest, and it proves to be inflexible.

Therefore, the comparison between the three background information on annuities below are essential to help you make a better decisions:

1. Annuity explained
There are two basic types of annuities:

1.1 Immediate annuities
Type of payment: a lump sum payment
Period of start receiving time: One year
Advantage: Suitable for who have a large sum of money and want to quickly start getting money they may need.
Drawback: more expensive than Deferred annuities.

1.2 Deferred annuities
Type of payment: either paid in a lump sum or in installments with your returns given out after a stipulated period of time, such as ten years.
Period of start receiving time: over a certain period of time
Advantage: The principal money you have invested here grows tax-free until you decide to withdraw it.
Drawback: inflexible

2. Benefits of annuity
Annuities are becoming increasingly attractive to many investors because of annuity leads generation.
The benefits that annuities provide its holders are as follows:
2.1 Provides you with lifetime income – You will annually receive returns upon retiring
2.2 Combines insurance and savings
2.3 Guarantees returns
2.4 Offers better tax savings.
2.5 Offers inflation protection

3. Drawbacks of annuities
The drawbacks of investing in annuities are as follows:
3.1 Does not maximize your investment
3.2 Proves to be inflexible–The principal amount you paid is held for investment and cannot be get back anytime you want for another investment or purpose.
3.3 Requires large sums of money to invest

4. Investment styles
4.1 Fixed annuities 
Characteristics: a guaranteed and fixed rate of return on investments
Type of annuities: either be immediate or deferred

4.2 Variable annuities
Characteristics: whose returns vary depending on the performance of the mutual funds selected at the beginning of the contract that invests money