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 Annuities to help protect your loved ones Annuity Rates and Quotes

Annuities to help protect your loved ones Annuity Rates and Quotes

Annuities are one of the most confusing ways to invest your money and if you don’t understand how annuities work then you’re not alone. That is the reason why I decided to create Annuities Explained which will go over various "annuities for beginners" lessons to help explain how annuities work, the various types of annuities, the pros and cons of annuities and perhaps most importantly, how to buy annuities. I will try to go in to further detail in future posts and I invite you to ask questions along the way.

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 How Annuities Work

The simplest way to explain how annuities work is to describe them as an investment security that you pay money in to for a set period of time, and once you reach a certain date you start to receive regular payments for a set period of time, often times for the rest of your life. Investors, especially those who are very risk averse, like annuities because they provide a steady stream of income and unlike stocks, bonds, mutual funds and other common investment options, annuities are guaranteed.

The amount of time you pay in to the annuity can vary anywhere from a onetime payment (think lottery winner or someone who just received a big inheritance) to many smaller payments over a long period of time. This will vary largely on the amount of the annuity and when you intend to start receiving payments. For example, if you start paying in to an annuity when you were in your 20s but don’t intend on taking payments until you retire, you will likely have many small payments, however if you waited to start when you were in your late 50s, you will need to pay more each month over a shorter period of time. Annuities provide a nice supplement (or primary income) especially for those who think social security might not be enough for retirement.

Once you reach the date where you will start receiving annuity payments you will be paid a guaranteed amount of income every month until you die. Some annuities will also allow your spouse to receive payments after your death until they die, but terms can vary depending on where you purchase the annuity.

Annuities to help protect your loved ones Annuity Rates and Quotes

 The term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time. This usage is most commonly seen in discussions of finance, usually in connection with the valuation of the stream of payments, taking into account time value of money concepts such as interest rate and future value.

Examples of annuities are regular deposits to a savings account, monthly home mortgage payments and monthly insurance payments. Annuities are classified by the frequency of payment dates. The payments (deposits) may be made weekly, monthly, quarterly, yearly, or at any other interval of time.

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A life annuity is a financial contract in the form of an insurance product according to which a seller (issuer) — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity.

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The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will terminate and the remainder of the fund accumulated is forfeited unless there are other annuitants or beneficiaries in the contract. Thus a life annuity is a form of longevity insurance, where the uncertainty of an individual's lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit

 In the U.S. an annuity contract is created when an insured party, usually an individual, pays a life insurance company a single premium that will later be distributed back to the insured party over time. Annuity contracts traditionally provide a guaranteed distribution of income over time, until the death of the person or persons named in the contract or until a final date, whichever comes first. However, the majority of modern annuity customers use annuities only to accumulate funds free of income and capital gains taxes and to later take lump-sum withdrawals without using the guaranteed-income-for-life feature

An annuity can be defined as a contract which provides an income stream in return for an initial payment.

A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years. 

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