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An annuity represents a contractual relationship between
you and an insurance company. Although offered only by the insurance industry, annuities
have little in common with insurance coverage.
There are many different types of annuities and ways
to categorize them.
How the money is invested:
- Fixed Rate Annuity
– investor receives a set rate of return for a specified
number of years.
- Variable Annuity
– no set rate of return but choice of one or more portfolios,
similar to a mutual fund family. Variable annuity investment choices may
include a combination of stocks, bonds, and money market securities. Abio
Financial Group, Inc. chooses not to offer variable annuities due to market
risk.
- Equity-indexed annuity
– interest credited to the account is linked to a well
known market index, usually the S&P 500. Unlike a variable annuity, an EIA
cannot decrease in value. An EIA has a minimum guarantee and increases
due to stock market appreciation. It can never decline due to a flat or
declining market.
When income is desired:
- Immediate annuity –
money starts to be paid to the contract owner or annuitant
either right away or within a month, quarter, or year.
Immediate annuities are designed for people who need income
on a regular basis.
- Deferred annuity –
the investment grows and compounds tax-deferred. Income,
growth, and/or principal are withdrawn at some time in
the future by the contract owner or heirs.
Flexible
or single premium:
- Flexible premium
– additional monies can be added at any time
in the future to the same annuity contract.
- Single premium – a
lump sum of money is used to purchase an annuity.
Advantages
of Fixed and Equity Indexed Annuities
1.)Safety – Your principal
and interest is guaranteed
2.)Tax-Deferred Growth – Money
grows and compounds tax-deferred, creating triple compounding.
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Interest earned on principal
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Interest earned on interest
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Interest earned on money that
would be paid in taxes
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Reduces taxes and taxes on
Social Security
3.) Tax-Free
Exchanges – IRS allows 1035 exchange from
one company to another with no tax consequence.
4.) Competitive Yields
– Higher than CD’s, or index based with no risk.
5.) Liquidity – Interest
only, 10% yearly, income.
6.) Creditor Proof – (not
all states)
7.) Bypasses Probate
8.) Lifetime Income – Annuitization
options provide for distribution of both principal and growth.
9.) No Sales Charges –
100% of your money goes to work for you.
Different
annuities offer various advantages.
Reference: Getting Started In Annuities, Gordon
K. Williamson
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