Discover the Different Types of Annuities

Types of Annuities

types of annuities

By definition, an annuity is a contract where an individual invest money with an annuity company in exchange of a future set of payment determine in a contract. Like many types of contract, an annuity can be customized. This is why there are several types of annuities. Each of them has been designed to suit a specific need. Since you have a unique situation, you need a unique annuity.

 

For example, an investor might want to cover his retirement alone only while another one may want to generate payments after his death to support his spouse. The first investor will require a life annuity while the second will look for a joint & survivor life annuity.

 

We have listed the main characteristics of several types of annuities in this section. If you want to learn more about each of them you can click of the type of annuity to read a more in-depth definition.

 

Fixed Annuity

The Fixed Insurance Company receives an amount of money in exchange of monthly payments to the beneficiary until his death. Once the beneficiary passes away, the annuity contract ends. If the beneficiary passes away prior to receive at least the amount paid for the annuity, the remaining stays with the Life Insurance Company and the estate receives nothing.

 

For more information about fixed annuities, click here.

 

Term Certain  Annuity

The Life Insurance Company receives an amount of money in exchange of monthly payments to the beneficiary for a specific (fixed) amount of time. If the beneficiary passes away prior to the end of the contract, the Life Insurance Company (also called an annuitant) will keep the remaining. For example, an investor purchase a $100,000 time-certain annuity paying $8,000 per year for the next 15 years. If he passes away after 10 years, the annuitant keep the remaining value of the contract. The advantage of the term certain annuity lies in its cost since it is not related to your health or life expectancy.

 

For more information about fixed annuities, click here.

 

Indexed Annuity

Similar to the life annuity, the Indexed Annuity or Equity Indexed Annuity is paying a monthly payment until the beneficiary death. The payment is variable as it depends of the changes of an index such as the S&P 500 which represents the 500 biggest companies on the US stock market. The interesting characteristic of this type of contract is there is a minimum payment amount in the event of the index going in negative return. Therefore, your annuity payment is guaranteed to a minimum while the potential gain is higher during bull markets.

 

For more information about indexed annuities, click here.

 

Insured  Annuity (back-to-back)

This type of contract could also be called a “back-to-back” annuity. This is strategy is a combination of two products: a life annuity and a life insurance. Since payments stop upon death of the beneficiary in the case of a life annuity, the life insurance enables the Estate to recuperate the capital previously used to purchase the annuity.

 

For more information about insured annuities, click here.

 

 

Variable Annuity

Similar to the Indexed annuity, the variable annuity offer a higher potential payment than a regular contract as it is linked to investment products such as mutual funds. However, the rate of return and the amount of the periodic payment you will receive will vary greatly depending on the type of investment you selected for your capital.

 

For more information about variable annuities, click here.

 

Longevity Annuity

 

The main difference between a longevity annuity and a life annuity is the moment where the payment begins. A longevity annuity will include a deeply deferred payout period. For example, an investor can purchase this contract at the age of 55 but plans on receiving payments only at the age of 75.

 

For more information about longevities annuities, click here.

 

Qualified & Nonqualified Annuities

 

The distinction between a qualified and nonqualified annuity is fairly simple. We claim an annuity to be “qualified” when it is used within tax-advantage retirement plans such as 403(b), IRAs, TSAs and defined pension plans. By definition, a nonqualified annuity is not used within tax-advantage retirement plans.

 

For more information about qualified and nonqualified annuities, click here.

 

Joint & Survivor Life Annuity

 

An annuity can cover more than one beneficiary. This is the case of joint & survivor life annuities. This contract will include payments for the survival spouse and therefore depends on both lives before it ends. This is a great way to insure an income stream for both spouses.

 

For more information about joint & survivor annuities, click here.

 

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