Annuity Basics

An annuity is a long-term, interest-paying contract offered through an insurance company. The key word here is "contract". Because an annuity is a contract, the guesswork and uncertainties you may have with other investments such as mutual funds or stocks are not present in an annuity. You may have heard that life insurance protects you from dying too soon. Annuities can protect you from living too long.

Safe Money
With a fixed annuity, you money has minimal risk. Insurance companies offer competitive interest rates for fixed annuities, which include minimum guarantees. There are some advantages to annuities:

• Guaranteed lifetime income - You can receive monthly payments for the rest of your life. The monthly amount is based on which annuitization option you choose. There are multiple ones available.
• Avoidance of probate - At death, the value of an annuity will pass directly to your beneficiary and avoid the delay and expense of probate.
• Principal is not reduced by sales commissions - That means that usually 100% of your money is working for you tax-deferred.
• Competitive Rates- Not only do annuities offer competitive rates, but when the power of tax deferral is factored in, the annuity's performance is enhanced. You can even purchase bonus annuities, which offer special first-year interest bonuses.
• Safety - The insurance industry is one of the most regulated industries in the country, with rules governing everything from company investing to reserve requirements.
• Liquidity - If you need money or any reason, annuities have several liquidity advantages. You can generally make partial withdrawals at any time without a company-imposed penalty.