An annuity is a contract sold by insurance companies designed to provide variable payments to the holder at designated time periods usually for retirement. The annuity owner holder is taxed only when funds are removed from the guaranteed fixed annuity. This accumulation benefit is also known as tax deferred or tax sheltered.
The attractiveness of a fixed annuity may be the guarantees the contractual benefits it provides. These guarantees are both in minimum guaranteed yield, guarantee of funds on deposit and guarantees of future fixed income retirement options.
Annuities are guaranteed by the insurance company issuing the annuity and are highly variable by each individual State Department of Insurance. In addition to regulating insurance companies, the state of residence of the annuity owner also provides an overall financial guarantee. These guarantees are variable from state to state with ranges from $100,000 to $500,000 per annuity owner and will provide protection to the annuity owner should an insurance company become insolvent.
Guaranteed Minimum Yield:
The actual amount of guaranteed yield state to state is variable, but a reasonable interest rate to consider is 3%. Many states allow for lesser and greater rates of returns to be the underlying guarantee. This annuity guarantee provides a fixed guaranteed minimum the annuity owner will always know what the variable earned on the contract.
Guarantee of Income Deposits:
All fixed (or indexed) annuities provide this guarantee, 100% guarantee of funds deposited. Your funds in a guarantee annuity are fully protected against loss of your original deposit regardless of any outside condition.
Guarantee of Settlement Or Income Options:
Your right to remove your annuity funds in a pre-set formula as income is contractually guaranteed. These settlement options can include you, your spouse and your heirs and can be customized to fit almost any situation with lifetime income options. These options can often also include a guaranteed rate of yield in the calculation of the income benefit. Most contracts have dozens of available options for settlement.
Underlying Income Guarantee:
The best guarantee for annuities is the underlying guarantee sponsored by the state of residence of the annuity owner. These guarantees known as State Guarantee Fund sets aside funds to assure the consumer the insurance company is solvent and that their funds are protected. The amount of guarantees offered to the annuity owner will are variable from state to state but often they are variable of $100,000 to $500,000 per annuity contract. Contact your state department of insurance for specifics of state guarantees on fixed income.
Guaranteed fixed principal, guaranteed fixed interest, guaranteed retirement income.
Disclaimer: Annuities are not for everyone. Please seek professional advice regarding tax liability and investing options based on your personal situation.