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« Distance MBA Program Creates New Opportunities for Students | Main | Compensation scheme hits Nationwide »

General Information about Annuities

By plrprousers | June 22, 2009

While a lot of people choose to invest in stocks, bonds or mutual funds, some choose to invest in annuities. Investing in an annuity has many advantages as well as downsides. Some people say it is safer than stocks and most of the other investments out there while some people disagree. Let us first understand the annuity definition. An annuity is an insurance product. It is a contract between you and the insurance company. You basically give the insurance company money and they will, in turn, pay out income to you according to the contract. Annuity payments are often spread over many years. The money you put into an annuity may grow tax deferred which means you will not pay any taxes on your income put into the annuity until you withdraw your money.

There are several types of annuities that you can invest in. Some people prefer to invest in fixed annuities, some prefer variable annuities and some prefer to invest in an annuity index. As with all types of investments, there are risks associated with investing in different types of annuities. The more risk you are willing to take on, the more your annuity account will grow as long as the market is favorable and your annuity investments are doing well. However, a lot of people invest in annuities because they would like to invest in something that is safer than stocks or mutual funds, hope to get the tax benefits and like the various guarantees that the insurance companies throw in.

You can choose to receive the annuity payments in a single, lump sump payment, monthly payments, quarterly payments or yearly payments. You have a say in how large each payment will be or how long you want to receive payments for. Some people choose to receive payments for life but others may opt for receiving large payments for a smaller amount of time. While payments are guaranteed to a certain extent, there are many expenses you will have to pay to the insurance company in exchange for the guarantees that they offer. This is the key reason why a lot of people say annuities are expensive investments.

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