A Quick Guide to Annuity Annuity is all about financially handling an individual’s money with interest earnings by a financial company, either life insurance company or investment company, in which through a contract, the financial company accepts funds from the individual to let it grow for a specific period of time and by an agreed term and conditions, such that when the agreed time has been completed, the life insurance or investment company starts providing an annuity payment to the individual. Annuitization is the process of converting the funds of the individual called annuitant into a series of periodic income payments, in which a specific and agreed period of time is allowed for the funds to grow, such that when annuity payments to the annuitant begins, the contract is said to be in the annuitization phase. Pensions and Social Security are examples of lifetime guaranteed annuities that pay retirees a steady cash flow until they die. Depending on the annuitant, the fund which the annuitant has invested can be spread out in either a specific period of time or for the entire life of the annuitant, and when the agreed period has been completed, the annuity payment may only be made to the annuitant or to the annuitant’s surviving spouse in a joint life arrangement or the annuitant can arrange for beneficiaries to receive a portion of the annuity balance upon the death of the annuitant. The design purpose of an annuity is basically for an individual to have a reliable means of securing a steady cash flow during his/her retirement years and to alleviate fears of a longevity risk or outliving one’s assets. People who have won a huge amount of money in a lottery or those who received cash settlements from a lawsuit may consider to convert their money into a steady cash flow by investing their money into an annuity fund. Depending on the details and factors and for as long as the terms of the duration of time that payments from the annuity can be guaranteed to continue, annuities can be structured in a variety of ways, such as: annuities can be structured so that payments will continue for as long as either the annuitant or his/her spouse (if survivorship benefit is elected) is alive; annuities can be structured to pay out funds for a fixed amount of time, like 20 years, regardless of how long the annuitant lives; annuities can be structured in such a way that annuity payment can begin immediately upon deposit of a lump sum; annuities can be structured as deferred benefits; and annuities can be structured as either fixed or variable.
The Essentials of Insurance – Breaking Down the Basics
Fixed annuities are structured to provide regular periodic payments to the annuitant; however, in comparison to variable annuities, the annuitant receives a greater, future cash flow if the investments of the annuity fund do well and smaller payments if the investments are earning low, but the advantage of a variable annuity is that it allows the annuitant to reap the benefits of strong returns from their fund’s investments. While variable annuities carry some market risk, its structures offer riders options and features, which can be added to the annuity contracts for some extra cost, which allow the new annuity contract to function as hybrid fixed-variable annuities. These riders may be also structured, depending on the need of the annuitant, such as: the annuitant can benefit from an upside portfolio potential while enjoying the protection of a guaranteed lifetime minimum withdrawal benefit if the portfolio drops in value; the annuitant may use the riders as a death benefit in the contract or accelerate the pay outs if the annuitant is diagnosed with a terminal illness; cost of living riders adjust the yearly base cash flow when there is inflation.The Essentials of Insurance – Revisited