10:56 am - Wednesday December 13, 2017

What Is Annuity – Types and Importance


Annuity is a type of insurance product, which provides income, and can also be styled as a retirement strategy. The most commonly asked question to an insurance agent is what the annuity is.

According to a definition proposed by the investment consultant, an annuity is an investment that you make for the future. The income from annuity can be claimed either on a monthly basis, or quarterly, yearly, or as just one single large payment.

Types of Annuities:

There are three types of Annuities.

  • Fixed Annuity: In this type of annuity, the insurance company states from beforehand only the minimum specific value, which the investor is going to get. The insurance company also promises to pay a certain amount of money in the account that is deposited by the investor. The payments can either be for a fixed number of years, or till the death of the investor and their spouse.
  • Indexed Annuity: In this type of payment, there is no guaranteed return. The return depends on the performance of the market. Although this is market dependent, still some minimum guaranteed return is there.
  • Variable annuity: In this type of annuity, the purchase payments can be reinvested among the different options that are available for investment. Like Mutual funds, etc. the amount that you get back depends on how the fund is performing in the market.

Importance of Annuities:

The purpose of having annuities is the protection of the investor against running into superannuation, which means running out of the income generated by the person.

The elderly people, if they run out of money then they will have no chance of regaining the lost wealth. So, the advantages of having annuity are as discussed below:

  • The annuities are created to lift the people out of risk of getting superannuated.
  • As a particular sum of money is received by the beneficiary until his death, so he has a steady source of income to cater to in an old age.
  • These are a very good option of savings for your retirement.
  • The investment has to be made every year until a fixed age of the benefactor. The amount of money invested is tax free. So by investing in annuities, a person can save tax.
  • If the person who pays the premiums for the annuity suddenly passes away, then the amount passes to the beneficiary, without any legal hassles.

Hope this all answers all about what is annuity and the benefits attached with it.

Filed in: Investing Saving

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