A Crash Course In Understanding Annuities

By Kyle Fitzsimmons, InsuranceAgents.com Staff Writer

Understanding Annuities Isn’t As Complicated As You Might Think

Let’s jump right in to understanding annuities. An annuity is a written contract that you have with a life insurance company in which you agree to pay a premium or premiums until a specified date at which time your insurance company pays you back the value of your annuity over a series of payments. Start comparing rates on annuities using our online forms to get up to 5 offers.

Many people make the mistake of thinking that an annuity is the same as life insurance. This is not true. Understanding annuities is realizing that an annuity is for you and your future—most likely for retirement—whereas life insurance is for your family after you’ve passed on.

Here’s an introduction to understanding annuities.

The three main participants in an annuity contract are:

• The owner – The purchaser, payer of premiums, and owner of all rights to the annuity is the owner.
• The annuitant – Most of the time this is the same person as the owner. The annuitant’s age and life expectancy will determine the benefits that the annuity will generate.
• The beneficiary – Should the unfortunate happen and the owner/annuitant pass on before the annuity reaches the pay out period then all assets will go to this person who is named in the contract.

See, understanding annuities, isn’t so difficult after all. Here are a few more introductory points about annuities:

• You have the option to pay a single premium or multiple premiums over the life of your annuity
• If you are close to retirement then consider an immediate annuity which begins pay outs immediately. However, if you are years from retirement then a deferred annuity is a better option, because the ability to accrue more assets over a long period of time is greater, with this type of annuity.
• Know that you can choose between a fixed annuity which provides payments that are guaranteed in the contract and add value over time as a result of interest. There is also, variable annuities, which offer a wide array of investment options that are usually quite risky but could yield big rewards if handled properly.

Understanding Annuities Is The First Step

Although they aren’t as complicated as many people think they are, understanding annuities is crucial in developing a better understanding of your options. Once you have a basic framework for how annuities work then you can go to your life insurance agent with some specific questions so you can gain a more in depth experience of understanding annuities and how they work. Start compaing up to five offers by using our online quote forms.

Published: Wednesday 2nd September 2009