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What are the basic types of annuities?
The two basic types of annuities are fixed annuities and variable annuities. - A fixed annuity pays a guaranteed rate and guarantees principal.
- A variable annuity produces investment returns based on the performance of investments made through the annuity. You have a higher potential rate of return with a variable annuity, but you also have more investment risk.
What kinds of fees do annuity companies charge?
Most annuity companies charge annual maintenance fees of $25 to $50. Variable annuities have higher expenses than fixed annuities because of their various sub-accounts. These can run 3% or more.
Many companies don’t charge an initial commission, or load, on annuities. Instead, they levy substantial surrender charges of as much as 10% of your principal if you want to cash out or transfer your annuity to another company within the first five or 10 years of the contract. They may permit free withdrawals after the first year that lets you withdraw a certain portion (usually 10%) of the accumulated account value.Annuity surrender charges do not apply to an immediate annuity because you cannot surrender it once you have purchased the contract.Who are the parties in an annuity contract?
An annuity contract always involves at least three parties: the owner, the annuitant and an insurance company. It may also have a beneficiary. How it works: An insurance company issues you an annuity, promising to invest your premiums wisely and pay you or your beneficiary according to the options you select. You purchase the annuity and designate the beneficiary. The annuitant can be the person who receives the payment when the annuity is annuitized (when payments begin) or the person whose age is used to calculate payments to the annuitant. In many cases, you are both owner and annuitant. Your beneficiary is generally the person who receives the death benefit of the annuity if you die before the annuity starting date or who becomes the owner upon your death on or after the annuity starting date.If I die before the payback period of my annuity begins, will my beneficiaries receive anything?
Your beneficiaries will receive the guaranteed return of principal or the cash value of the annuity, whichever is greater. The types of benefits vary depending on whether the annuity is fixed or variable. If you own a fixed annuity when you die, your beneficiaries receive the accumulated value (principal and interest) of the annuity.If you own a variable annuity, the value of your annuity accounts varies based upon the value of the underlying securities. Most variable annuities include a provision for life insurance benefits, ensuring that your beneficiaries receive something.What is the accumulation phase of an annuity?
The accumulation phase is the time when you’re putting money into an annuity, through contributions, interest or investment returns. The day you start receiving payments marks the beginning of the annuitization or payout phase. What is annuitization?
When an insurance company begins paying out the proceeds of an annuity on a monthly basis, the annuity is said to be annuitizing, and the process is called annuitization. Do not annuitize without careful thought. Once an annuity is annuitized, you cannot reverse the annuitization or withdraw funds within the annuity. Annuitization effectively exchanges the cash in the annuity for a guaranteed but inflexible income stream.Why is the decision of when to annuitize an annuity so important?
Once your annuity is annuitized (and you start taking regular income payments), you have no other options. The income is distributed as the contract requires, but you cannot increase or decrease the payments. Nor can you make cash withdrawals from the principal. What’s the difference between the current rate and the guaranteed rate on an annuity?
The guaranteed rate of an annuity contract is the rate defined in the contract. It’s the minimum rate the contract will pay. The current rate is the rate the insurance company actually pays to stay competitive in the market. Return to Questions
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