Annuities can provide an investor with insurance protection and the ability to earn money fron the investments made in the annuity over the contribution period, which is usually over many years. The rate of return on these retirement investments are based on the performance of the investments themselves, the contribution amounts made into the account and the number of years the investments have had a chance to grow.

Annuity Payout

Payouts on an annuity are based on a fixed number of annuity units that are owned in the account. The value of these units will fluctuate. The payment amount will either be fixed or variable, depending on the type of annuity you have chosen to invest in.

The annuitant is the person whose life governs the duration of life annuity periodic payments on the product plan.

The beneficiary is the person designated to receive the contract’s death benefit in the event the owner or annuitant dies before the contract is annuitized. Most contracts issued today are owner-driven contracts, which means the death of the owner will trigger a death benefit payout to the named beneficiary. However, there may be contracts that are annuitant-driven, which means the death of the annuitant will trigger a death benefit payout to the named beneficiary. In the majority of cases, the contract owner is also the annuitant, which means, obviously, the beneficiary will be paid the death benefit if the owner/annuitant dies before annuitization.

The insurer is the insurance company that issues the annuity contract.

For people not in a corporate retirement plan or who do not have a defined benefit plan at their job, an annuity can offer investors a chance to earn money and get insurance protection for their retirement.

Deferred

There are two basic types of deferred annuities: fixed and variable. Fixed Annuities guarantee that an annuitant’s money will accumulate at a minimum specified rate of interest. However, the company will pay a higher rate of interest if its investment experience is better than the minimum guarantee. Variable Annuities are different in that contract owners direct the distribution of their money among several different accounts and their accumulated funds reflect the experience of those accounts rather than that of the company. Typical account choices are common stock, bond, mortgage or money-market accounts. If the value of the accounts increases or decreases, so will the amount accumulated. Variable annuities are more risky to the contract owner than fixed annuities, but there is a possibility of greater returns.

Other types of deferred annuities combine the characteristics of fixed and variable annuities. Annuities are sometimes sold as alternatives to investment vehicles such as certificates of deposit, money market accounts, mutual funds, etc. Under a deferred annuity, premiums paid accumulate, earning interest, and installment payments are deferred until some future date. When annuity benefits commence, the accumulated value is used to purchase the annuity benefits the contract owner selected. Most deferred annuities provide the same annuity payment options as are available with single premium immediate annuities. Deferred annuities are available on a single premium or flexible premium basis. Interest is credited to the accumulation value from the date that the premium payment is received until the earliest of the retirement date, the annuitant’s death or the date that funds are withdrawn.

If the annuitant dies on or before the retirement date, and no annuity payments have been made, the company will pay the accumulated value as of the date of death. The contract also gives the option to withdraw the cash value before commencement of payments. Cash withdrawals are usually subject to a surrender charge in order to recover expense costs. Many contracts provide a free annual withdrawal of 10% of the cash value without a surrender charge. In addition, some contracts, especially single premium deferred annuities, will waive all surrender charges if the credited interest rate falls below a particular rate commonly known as the bail-out rate.

Structured Settlement Annuity

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