What Is An Annuity? Types of Annuities Explained

In the world, a large number of people still do not know what annuity is and how it works, and it is the people who lose one of the best pension rates. The result is, therefore, a loss of essential potential retirement income. Reports have revealed that approximately 150,000 people lose higher incomes each year. But what is an annuity and how can it help people after retirement? Let us know.

An annuity is a contract between an insurance company and an individual. Under this contract, the individual will receive a regular income in exchange for the investments made during a specific period or as a lump sum payment. Annuity is the best option for someone looking to invest their money to make their retirement safe. There are many types of annuity products available in the market today. Let us check out some of the major types of annuities and how they can help protect your future.

What is an annuity?

Most insurance companies that offer annuities define it as an investment that guarantees payments of a specific amount during specific periods of time. The amount that the insurance company receives from an individual can be a lump sum or periodic interest.

Generally, there are two main types of annuities. They are fixed and variable annuities.

Fixed annuities: an insurance product designed to provide long-term savings and deferred taxes. There may be few investment options, but fixed annuities offer a guaranteed minimum rate of return. No tax deduction is made on the money deposited. However, when you start making withdrawals, you will have to pay taxes. There is no income limit or annual contribution limit. This is a good option for those looking to increase their savings with deferred taxes.

Different rules, expenses and restrictions apply to fixed annuity contracts. These generally vary depending on the product you have chosen and the insurance company with which you have registered.

Variable annuities – an insurance product in which the insurance company guarantees to pay a minimum payment after the end of the accumulation phase. The premium can be divided into separate sub-accounts and used to invest in market segments such as the money market, bonds, international stocks and mutual funds. Investing funds is risky because you can earn more than you invested or lose more.

There is also another type of annuity called indexed annuity. This type is between fixed and variable annuities.

Indexed life annuity: it is a fixed annuity that generates interest linked to a reference of external capital. The interest rate paid depends on the performance of an index known as the SP500. The growth of the annuity depends on the participation rate of the index to which it is linked. Under this annuity, he does not lose his capital. You have the guarantee of a fixed annuity and, at the same time, you have the possibility of obtaining a benefit as in a variable annuity.