In Annuities - 3 years ago
Annuities refer to contracts made between an insurance company and a private investor which is primarily one of the best methods for providing a guaranteed stream of income for a period of time for the benefit of the investor. Annuities also make an excellent and profitable tool for retirement plan which is an investment option often chosen by most modern day investors.
Immediate vs. Deferred Annuities
The distinction between immediate and deferred annuities lies on how the payout phase for the investment is structured. Generally, annuities have two different phases which include the accumulation phase and then the payout phase. The accumulation phase refers to the time wherein the investor makes cash payments to his or her annuity plan and the interest that will be earned will be reinvested and compounds. The payout phase on the other hand is the period when the insurance company makes payments to the investor earned from the annuity on a regular basis.
An immediate annuity is specifically designed to offer a steady stream of income right after a certain amount of lump sum investment is contributed in the annuity. An immediate annuity basically has no accumulation period and as an investor, you can be able to make an investment and at the same time receive a pre structured payout all in the same year you made your investment. An immediate annuity is used primarily for older investors or those who are about to retire who are also more interested in a surefire stream of income than in growth of their investment over a period of time.
A deferred annuity on the other hand invest the principal amount over the accumulation period, and this is often over a period of 10 years minimum, and at a particular time in the future, the account value is reimbursed to the investor via a series of regular and periodic payouts planned to last either a specific period of time or for a lifetime. A deferred annuity is also used primarily by people with longer investment goals and who want a low risk investment while enjoying a guaranteed stream of income after his or her retirement.
Lifetime vs. Period Certain Annuities
Lifetime annuities provide income stream for as long as the investor lives and if the investor prefers, the lifetime annuity can also be structured with a smaller amount of payout to the investor and any residual principal amount from the investment less any payouts made are reimbursed to the investor's heirs upon the investor's death. But for as long as the investor is alive, a lifetime annuity will surely provide regular source of income for the investor. If the investor reveals the value of its investment payments will continue if the investor has chosen the option of paying life.
If the investor opts for the option period for payment of certain periodic payments will be higher than if the investor opts for the life of the option payment. The profits will only continue as long as the contract specifies. The investor can choose a small regular payment and include in the contract the option of the heirs to receive the periodic payment if the investor dies before the deadline is over or the residual value of the annuity at the death of the investors who paid in a lump sum to your heirs.
The payment option for life provides lesser income per month, but provides a monthly income stream for as long as you live. The period certain provides a monthly income higher, but this income will cease at the end of the period. What is the best choice for you? It depends on your unique situation and a decision should be made with your counselor.
What is the Right Structure for You
When it comes to choosing the best annuity structure suitable for you, you must first make sure that you have understood the different options you have for structuring your annuity plan. This is why sometimes it is a practical move to actual hire a financial advisor when you are planning to invest on annuities. With the help of an expert financial advisor, they can be able to guide you when you are at the first stage of choosing the right type of annuity for you that will be suitable to your different financial needs. With their help, you can be able to ensure that you make a wise decision based on the advantages and disadvantages of each type of annuity which will also determine the growth of your investment.