An annuity is a financial product often issued by certain financial institutions to accumulate value over time it is effective, after the specified date the instrument becomes payable, pay the institution so that over a period of several years, which guarantees a reliable source of steady income . Annuity contracts are often strictly regulated by various jurisdictions which obviously vary form state to state in the United States, in other parts of the world conditions and benefits also vary.
There are many categories of annuities. They can be quickly classified as follows:
Fixed or Variable Annuity: Fixed annuities are instruments that provide a fixed payment amount through its valid contract period, however, variable annuities are equity-indexed instruments, because of its properties it has a tendency to look like a hybrid. It credits a minimum rate, just like a fixed annuity does, but the value is also dependent on the results of a particular stock index, which is calculated as a percentage of the index’s return.
Deferred or immediate: A deferred annuity receive prizes and investment changes that have been collected to pay at a later date. Deferred annuity’s payout time frame can be a very long time, for example, can be deferred retirement annuities remain at risk for decades.
An immediate annuity is designed to pay an income one time-period after the immediate annuity is purchased. The timeframe depends on how often the income will be paid. For example, if your income is quarterly, the first payment four months after the immediate annuity instrument is purchased.
Fixed period, fixed amount, or lifetime: A fixed period annuity pays an income for a specified time period, for example, five, ten or twenty years. A lifetime annuity provides what is called”guaranteed income”for the rest, or a person’s life which is referred to as the annuitant.
Qualified or not qualified (Tax-wise): A qualified annuity is used to invest and allocate funds in a tax-favored retirement plan that an individual retirement account (IRA) or plans that follow the rules outlined in the internal revenue code sections 457 401 (k) and 403 (b), however, does not qualify annuities do not receive the tax benefits of qualified retirement plans.
Single premium or flexible premium: A single premium annuity is an annuity funded by a single payment. The payment can be invested to realize the gains in the long time frame, a flexible premium annuity is an annuity that is intended to be funded by a number of payments.
The best way to choose the best annuity is first to find out what you want and then try to match the benefits of different annuities to your needs. This will help to choose the annuity that is best suited for your current and future economic situation, considering all the advantages / disadvantages derived from it.