Purchase Annuity For Your Future

2007-03-08 10:33:40

( Financial )



To purchase annuity is to purchase long-term security. Annuities are a high-yield alternative to cash savings deposits. If you’re looking for a lucrative income beyond retirement, the ideal option is to purchase annuities.

What is Annuity?

Basically, an annuity is a financial contract between you, the annuitant, and the insurance company of your choice.

As the annuitant, you will pay the insurance company either a lump sum or a series of payments. The insurance company, in turn, guarantees to pay you an income for a specified period. Depending on the terms of your agreement, this income can be available either immediately or at a later time.

Modern tax laws defer taxes on annuities, until such time that you start receiving the funds as income. This means that your investment is allowed to grow without any tax levied on its earnings.

How To Purchase Annuities

You may purchase annuity in one of two ways:

1. Through a single premium annuity, which allows you to pay in one lump sum – If you decide to increase your investment later (to consequently increase your earnings), you will need to buy another annuity.

2. Through a flexible payment annuity, which allows you to make ongoing contributions to the insurance company – Under this set-up, you can add to your investment at any time, whether through regular or irregular intervals.

Types of Annuities

You may choose from two basic types of annuities, namely:

Fixed Annuities: This type of annuity allows you to accumulate earnings at a guaranteed interest rate for a specific period of time. Once the period is over, a new interest rate is set for the succeeding period.

Variable Annuities: This type of annuity offers several investment options for your money. A variable annuity allows you to purchase bonds, purchase franchises, or pool your money in a variety of investment vehicles. Your earnings are not guaranteed; but rather, depend on the performance of your portfolio. If your investment channels perform well, the annuity may surpass the fixed annuity rate. However, if they perform poorly, you may end up losing money. This is a more risky form. On the other hand, if you hit the right channels, the yields are significantly higher.

Some investors have learned to mix fixed annuities and variable annuities at varying degrees. However, if you plan to purchase annuity for the first time, fixed annuities are your safest bet.


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