The Basics
A form of investment, an annuity is grounded on the insured paying the insurer monies, which the insurer will invest. Sometimes the insured makes a lump-sum payment; at other times payments are made over a period of time. Regardless, funds can always be added during the term of the annuity.
Though typically a date is set for the principal and the interest earned on it to be repaid to the insured, there are also provisions allowing the insured to claim all or a portion of the monies beforehand. However, if monies are claimed by the insured before age 59.5, a penalty will be imposed on them.
One of the biggest advantage to obtaining an annuity loan is that the monies in it are not taxable until claimed by the insured, and therefore are growing at a higher rate than normal. Insurers offer both fixed rate and variable rate annuities: which one suits you best depends on your financial state and your goals for the future.
The Difference Between Fixed Rate and Variable Rate Annuities
With fixed rate annuities, the insurer guarantees a minimum interest rate on the money invested. The interest rate can be changed, but it can never be lower than the minimum guaranteed rate.
This is a strong feature due to the fluctuations in the economy and is attractive to individuals who are not risk takers.
The insured's money is put into several different investments when a variable rate annuity is chosen and the interest rate earned thereon fluctuates.
The insured has some control over the principal invested in the annuity, and can therefore direct that it be moved from one money market instrument to another. Individuals should have an above-average knowledge of investment instruments and sufficient funds to bear some loss before choosing a variable rate annuity.
Annuity Payouts
The insured has several options to choose regarding annuity payouts. One is taking the funds in a lump sum; however, this is not a popular option because the entire payout is taxed in the year it is taken.
Much more popular is setting up an arrangement where the annuity is repaid throughout the life of the insured. If this is selected, monthly payments will be dispersed to the insured based on his or her age.
This option is commonly chosen by individuals who are concerned that their retirement pay will run out early and they will have little, if any, other financial resources available.
There is also an option allowing the insured to choose the amount of payment received monthly. Of course, if this option is selected, there is a chance that the insured will outlive the annuity funds.
A form of investment, an annuity is grounded on the insured paying the insurer monies, which the insurer will invest. Sometimes the insured makes a lump-sum payment; at other times payments are made over a period of time. Regardless, funds can always be added during the term of the annuity.
Though typically a date is set for the principal and the interest earned on it to be repaid to the insured, there are also provisions allowing the insured to claim all or a portion of the monies beforehand. However, if monies are claimed by the insured before age 59.5, a penalty will be imposed on them.
One of the biggest advantage to obtaining an annuity loan is that the monies in it are not taxable until claimed by the insured, and therefore are growing at a higher rate than normal. Insurers offer both fixed rate and variable rate annuities: which one suits you best depends on your financial state and your goals for the future.
The Difference Between Fixed Rate and Variable Rate Annuities
With fixed rate annuities, the insurer guarantees a minimum interest rate on the money invested. The interest rate can be changed, but it can never be lower than the minimum guaranteed rate.
This is a strong feature due to the fluctuations in the economy and is attractive to individuals who are not risk takers.
The insured's money is put into several different investments when a variable rate annuity is chosen and the interest rate earned thereon fluctuates.
The insured has some control over the principal invested in the annuity, and can therefore direct that it be moved from one money market instrument to another. Individuals should have an above-average knowledge of investment instruments and sufficient funds to bear some loss before choosing a variable rate annuity.
Annuity Payouts
The insured has several options to choose regarding annuity payouts. One is taking the funds in a lump sum; however, this is not a popular option because the entire payout is taxed in the year it is taken.
Much more popular is setting up an arrangement where the annuity is repaid throughout the life of the insured. If this is selected, monthly payments will be dispersed to the insured based on his or her age.
This option is commonly chosen by individuals who are concerned that their retirement pay will run out early and they will have little, if any, other financial resources available.
There is also an option allowing the insured to choose the amount of payment received monthly. Of course, if this option is selected, there is a chance that the insured will outlive the annuity funds.
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