When trying to answer the question “What is Annuity”, there’s always the need to explore all possible avenues concerning the topic. There are various kinds of annuity you must know in order to answer the question properly. Fixed annuity is one of the basic types that come with several features. Let’s have a look at what it stands for.
Basically, fixed annuity is one of the basic categories you’ll discover when you consider what is Annuity. It’s simply a kind of contract you enter with an insurance company whereby you invest your lump sum. In return, the insurance company pays regular income on a fixed date.
The fixed annuity can be of two major forms namely, immediate fixed annuity and deferred fixed annuity. You need to explore what both of them stand for to get more clues.
Immediate fixed annuity allows you to receive immediate payment once you’ve made the initial purchase payment into your account. There’s no change on the fixed agreement once the process begins. It doesn’t get affected by increase in inflation as well. In most cases, you’ll not have access to the principal cash once the annuity begins to pay. You’ll only be receiving the income that accrues from the investment on the fixed date you signed with your insurer.
On the other hand, deferred fixed annuity allows you to be receiving a guaranteed amount of income on your investment over a long period of time. In most cases, you have to leave the investment to grow and mature for a long time. You’re expected to enter into a binding agreement with your insurance company over the investment. The interest rate in the deferred fixed annuity is usually tax-deferred. This means that you’re not to pay any tax on the returns until you’re set to make withdrawals.
Meanwhile the downside of deferred fixed annuity is that it may have high surrender charges. This can go a long way to reducing the amount you’ll withdraw when the time comes. This usually depends on the insurance company you’re dealing with.
Whether you’re choosing immediate fixed annuity or deferred fixed annuity, there’s always the need to be properly informed. You don’t need to work with limited information concerning the investment options. You need to carry out series of research about them before you make the next move. All over the US, there are several insurance companies offering all kinds of annuity. In getting to know what is annuity, you have to explore all the available options. Take your time to compare the various quotes the insurance companies are offering. You must also take your time to know more about the various kinds of annuities the company is also offering. This will help you make the right decision at all times.
To be on a safer side, you need to engage the services of insurance agents and other financial advisers. They will be able to guide you on the right step to take.