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Types of Annuities and Its Differences

Different types of annuities are all over the market today. These annuities have their own similarities and differences. That is why it is important to compare and contrast annuities in order for you to hand pick what you think suits you best.

There are two basic types of annuities determined with the timing of paying out to the annuitant – the Deferred Annuity and the Immediate Annuity. These annuities are also divided into two types depending on the investment type suitable to the annuitant. It may either be fixed or variable.

The deferred annuity is an annuity which pays out the annuitant at a specific date, most probably after his or her retirement. This allows a person to accumulate money deferred from taxes. It is an ultimate opportunity to secure the financial stability of a person after his or her retirement at work. A good retirement saving is what it is. On the other hand, immediate annuity begins shortly to pay the annuitant from the time he or she buys the annuity. This kind of annuity converts the annuitant’s assets to an income to be able for the annuitant to receive payment.  If deferred annuity poses a financial security after retirement, immediate annuity serves as an income provider for the annuitant and to his or her family for a time being. Here, they can choose until when the company pays them or their beneficiaries. They can also choose how the company will pay them. It could be monthly, quarterly or yearly.

Both deferred annuity and immediate annuity are offered in two ways. It could either be fixed or variable. Sometimes, some companies offer a combination of the two in a single annuity contract. In fixed annuity contract, the insurance company set a fixed guaranteed interest rate. Unlike in fixed annuity, variable annuity wavers depending on the performance of the investment or the investment company.

The deferred annuity and immediate annuity can either be fixed or variable. Deferred fixed annuity is an annuity contract that guarantees fixed interest rate for a specific period of time. This period may be adjusted by the insurance company the investor selected. Here, the annuitant’s money is placed in the general account of the insurance company. And since the annuity is fixed again, this kind of annuity is not flexible to going up and down rate of payments.

Deferred variable annuity, on the other hand, provides a range of selection of investment options which is referred as subaccounts. These subaccounts have varying objectives which depends on the company. Risk levels are posed as well. However, subaccounts could be a good feature also because of the flexibility offered to the annuitant to change investment strategies or to change subaccounts to another one.

Immediate fixed annuity compromises a stream of income that will not change during the payout period. As the name implies, there is a guaranteed fixed rate of payment. Unlike the immediate variable annuity, the payment will not be affected by inflations which could be a good thing. However, it will not be affected by deflation also.  It is wise for investors to assess their financial status before investing in this kind of annuity. They should try to measure if the payments they will receive are enough to cover his or her needs.

Immediate variable annuity offers a flow of income that will modify or change during the period of payout. The payment to the annuitant will vary from the first payment. It may either go down or go up depending on the performance of the subaccounts mentioned in the contract. Immediate variable annuity may provide more income than immediate fixed annuity. However, the payments will surely be a subject to instability.

Getting a view of the main annuity types is a must before buying one. Annuities are complicated and complex. That is why a right amount of knowledge and understanding about it really make a big advantage.

Now that you have taken a grip on annuities, it’s about time to decide which annuity suits you best. Enter your zip at the top of this page and start looking for annuity quotes of your type.