An annuity pays a monthly (or quarterly, semi-annual, or annual) income benefit for the life of a person or for a specified period of time. The annuitant (insured) can never outlive the income from the annuity. While the basic purpose of life insurance is to provide an income for a beneficiary at the death of the insured, the annuity is intended to provide an income for the life of the annuitant.
A fixed annuity accrues at a minimum interest rate without stock market fluctuation. The annuity is backed by the insurers' general investment account and credits interest to your account. The tax-deferred interest accumulates until withdrawn. The rate of return varies depending on prevailing interest rates. When the annuity reaches the end of its surrender charge period, the annuitant can continue the contract, receive a lump sum distribution or receive a set amount of income on a regular schedule, depending on the payout option chosen by the owner.
Equity Indexed Annuity
An indexed annuity secures principal by yielding a minimum interest rate while offering competitive growth based on the stock and bond markets. This allows you to take advantage of a booming market without the risk of losing your initial deposit. Indexed annuities are tied to the performance of an index and are tax deferred until withdrawals begin.
An annuity purchased with a single premium is an immediate annuity. The annuitant usually receives the first benefit payment one month from the date the annuity was purchased. Disbursed payments are calculated based on the annuity option chosen. Lump sum distributions from a qualified pension or profit-sharing plan are conventional sources for an immediate annuity purchase.