Single premium deferred annuities
Single Premium Deferred Annuities are those products, which are widely used in the retirement planning procedures. Few investment vehicles or savings offer the tax-deferred income and the security of the Single premium Deferred annuities. They are the interest earning contract of annuity between the insurance company and the individual. In lieu of the initial investment, the insurance firm pays the investment in addition to the accrued interest to the individual on the date of maturity of the annuities. Individuals are given the choice to either keep a fixed interest rate throughout the contracts life or reset a chosen time interval.
Under the present federal income tax laws of the United States, an individual does not have to pay any sort of tax on the accrued interest till such time as the withdrawal of the policy. Nevertheless, such withdrawal needs to be done only after the individual attains the age of 59½. This is because it would help in the prevention of the IRS penalty. This results in the faster growth of money. Both federal government and the Federal Deposit Insurance Corporation dont provide a guarantee of the Single Premium Deferred Annuities irrespective of whether such annuities are purchased from the bank or not.
More on Single Premium Deferred Annuities :
With the help of immediate or single premium annuities, the annuitant gets to make payment for the annuity with the help of a single lump sum amount. Most of these annuities are sold by the financial professionals. Most of these, directly work for an insurance firm. However, many of the financial professionals are the insurance firms independent agents and dont work for the insurance firm directly. Those professionals who embark on the sale of the annuities get to collect the commission from the insurance firm. This commission gets to be the percentage of the sum paid by way of premium by the investor. This percentage does vary from as small as 1 % to as large as 12 %. On an average, it comes to about 6 %. Due to the deferred sales charge on the annuities and the high cost of the commissions, most of the financial gurus have openly criticized the annuity policy.
Miscellaneous:
Generally, the investor would not pay the commission amount directly to the financial professional. This commission amount is paid to the professional by the insurance firm. This commission amount paid would be compensated by the firm by charging the amount to the consumer who unknowingly has to bear the expenses. For those individuals, who wish to take their lifetime income at the time of retirement, selecting a 401 (k) plan would be a good option.
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