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The Basic and Complex Terms on your Fixed Annuity Contract

When you want to invest in an annuity, especially the fixed option, you will want to have high minimum interest rates and the best conditions as well. This is all right because no one would mind having high incomes. The obvious question is how someone identifies a food firm that offers such features. One, you can visit all the websites for the insurers that you would like to invest in. However, this will require a lot of time. Two, there are insurers and agents who can give you this information from their websites. This is a great option because it will save your time. Apart from the term interest rate, your contract will have other terms that will refer to different rates. You need to understand what they mean. Following is a discussion of these terms.

a)            Bailout provision

Fixed types of annuities have minimum interest rates, which are revised annually. Therefore, they can increase or decrease. Bailout provision is the feature in your contract that protects you from surrender charges. This happens when you withdrawal your money during the accumulation period, which happens when the minimum rate falls below a specified level.

b)            Bonus rate

This is the amount of interest earned by your premiums, which is then added to your premium so that it can earn more interest for you. This is an important feature to look into because it determines how fast your money will increase.

c)            Effective annual yield

This is the minimum interest rate of a fixed annuity investment, which is usually a result of averaging daily interest rates. The daily rates are credited and compounded every day.

d)            Yield

Every annuity will have a certain rate for the return of investment. It is expressed in terms of the current price’s percentage.

e)            Lifetime guarantee for a minimum interest rate

When you sign a contract for your annuity (fixed option), you will have a minimum interest rate for your principal for the duration that your contract is active. This interest rate is sometimes referred to by this term.

f)             Annuity with a guarantee for multi-year interest rate

Even though most fixed annuities review their minimum rates every year, there are some options where you can get a guarantee for some minimum interest rate for a number of years. An annuity in this category is referred to by this term.

g)            Actuary

There are times that you might want an individual to help you understand or calculate some annuity rates. The person right for such a job is called an actuary (someone who has studied actuarial science).

h)            Annual percentage rate

This term refers to a consumer’s loan cost when expressed in terms of basic annual percentage amounts.

i)             Certificate annuity

This is a type of a fixed annuity. It assures you of a minimum interest rate for a period whose length is the same as the period during which a surrender charge was active.

j)             Initial interest rate

With deferred types of fixed annuities, you can deposit you principal over a long period. The first deposit will have an assured minimum interest rate, referred to by this term. This rate will extend for the period defined in your investment contract.

k)            Market value adjustment (MVA)

This is one of the fixed annuities. It gives an assured minimum rate so long as you do not withdraw funds exceeding the specified free-withdrawal amounts or decide to breach the contract while it is still active.

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