The Different Types of Annuity Plans That One Must Know About
Annuities are, without a doubt, one of the most popular financial instruments in use today. It is an insurance plan that pays out a specific amount of money regularly for as long as they live. This is understandable when you consider that annuities offer many benefits to their users. One can invest in an annuity either through their employer or by purchasing it directly from an insurance company.
Many types of annuities can be purchased, which often depend on the needs and desires of the individual. This blog post will discuss some different types of annuity plans, so you know what to expect before making any decisions about your future financial security.
Let’s get started.
Purpose Of Annuity Plan
An annuity plan is an investment scheme where people can contribute a fixed amount every month. This monthly contribution, along with interest earned on it, would be given as a lump sum after years or decades of making these contributions. It can also work in reverse wherein one has already made these investments and now needs money for immediate expenses like medical bills, college fees, etc. In this situation, they will withdraw some money from their existing fund, giving them the same outcome that was planned initially.
Main Types of Annuity Plans
- Immediate Annuity
An immediate annuity is a special type of investment that provides monthly income payments for an individual’s lifetime. In other words, it’s a financial product purchased with money from an insurance company and used to build up savings by saving overtime in one account rather than many different accounts at various institutions. The payment period begins immediately after your initial purchase (the starting date) and continues until you die or surrender the policy, whichever event occurs first.
- Deferred Annuity
A deferred annuity is an insurance plan that allows you to save money for retirement. The policyholder pays the insurer a premium, and in return, upon the death of the policyholder or at a specific time, i.e., age 65, he receives guaranteed lifetime income payments (as long as premiums are paid). This type of annuity does not commence paying out until after a specified period has passed.
- Variable Annuity
This is an annuity plan that provides a fixed or variable payment for life. This type of annuity may offer guaranteed minimum income benefits, death benefit protection, and other features. There are two types of this tax-deferred retirement account; single premium (costs one lump sum) and flexible premiums (contributions can be made regularly before the contract date).
- Fixed Annuity
The payout rate on these plans depends upon interest rates set by various financial institutions like insurance companies, banks, etc. These act as a benchmark to determine how much would be paid out at regular intervals. These feature many different investment options with varying risk levels, thus giving the insured individual more control over their money. One can even switch between different funds to maximize their return on investment.
The Bottom Line
There are many different types of annuity plans that one can choose from. While the first two above may seem like they fit your needs best, it is important to research before taking the final decision.