Annuities, and Types Of

An annuity is a contract between you and a financial institution where you give the institution an amount of money in return for a stream of fixed income payments for a specified period of time. The most important factor that determines the amount of annuity income you receive is the interest rate at the time of purchase. Other factors include your life expectancy, your age, your gender, and the amount you invest. Annuity payments will be lower if you add options such as guaranteed terms or indexing against inflation. You can buy an annuity at any age.

Types of annuities are as follows:

Life Annuity Payments, which are the highest off all annuities, continue as long as you live. Payments cease when you die and you receive no command value.

Joint-and-Last-Survivor Annuity Payments are less than a life annuity but they continue as long as you or your spouse lives. Payments stop when the surviving spouse dies. The survivor may opt to receive a lump sum or continue with regular payments.

Guaranteed-Term Annuity This annuity guarantees a minimum number of payments. Upon your death, any remaining payments or their command value are paid to your spouse or other beneficiary. Payments do not cease at the end of the guaranteed period if you are still alive.

Insured Annuity An insured annuity combines a life annuity with a Term to 100 insurance policy. The life annuity provides a guaranteed income for life while the term life policy guarantees the capital for you beneficiaries estate.

Term-Certain Annuity Provides a fixed monthly income until the age of 90, rather than for life. If you die earlier, payments continue to you surviving spouse until the time you would have been 90.

Indexed Annuity Provides protection from inflation, but payments are lower.

Prescribed Annuity With regular annuities, a greater amount of taxable interest is paid out early in the annuity term. In contrast, the taxable interest is spread evenly over the life of the prescribed annuity, resulting in a deferral of tax. Prescribed annuities can be purchased only with non-registered funds.

Substandard Health Annuity If you have a medical condition that may shorten your life, you may qualify for a life annuity with higher payments. The payments will be higher since they are based on a shorter life span or payment period.