Facts about Annuities Explained
Annuities may be fixed or variable. These are beneficial contracts you can enter into with your insurance company. This article contains facts about annuities explained. While understanding annuities seem to involve incomprehensible terms and concepts, you might find that after reading this article, these terms are not so difficult to understand after all.
Definition of Annuities Explained
An annuity is an amount that you get from an insurance company or a bank after paying a certain amount or a premium. These payments that you make gain interest and at a specified date in the contract, you will get repaid. The definition of annuities explained simply is – if life insurance guarantees financial assistance to the bereaved beneficiaries of the policy holder should there be an unexpectedly early death, annuities guarantee financial assistance to the living owner of the policy should there be a longer life expectancy beyond salary-earning years.
Fixed Annuities Explained
Due to the definition of annuities explained to you, now you can confidently ask the next question what are the different types to choose from? There are different types of annuities and a fixed annuity is one of these types. In this particular type, you are guaranteed interest rate over a certain period. This period may cover a definite period such as one year, 2 years, 5 years or even 20 years. The period may also be indefinite. Either way, the principal amount is allowed to gain interest, tax-deferred, until such time that it is withdrawn. After the stipulated period of payment, the principal is returned to you.
Variable Annuities Explained
As opposed to fixed annuities, variable annuities give you freedom to choose among a range of different investment options regarding the rate of return and the amount of the periodic payments you will eventually receive.
Equity-indexed Annuities Explained
After reading the main types of annuities, there is a third one you need to read about. The equity-indexed annuity is a special type of annuity wherein you either make a lump sum payment of series of payments and then at the end of the payment period, an equity index is used to compute for your returns.
Hopefully, the different types of annuities explained helped clarify some of your queries regarding the payment you are currently paying or planning to make for your insurance.