what are annuities
Annuities in the United States generally means an investment contract deferred in nature, which on its annuitization would make payments on either annual basis or a monthly basis to the person, who is referred to as annuitant for a certain specific period. These contracts mainly bestow the income at the time of retirement or a flow of payments in the form of personal injury lawsuit settlement.
There are some annuities, which are called as joint and survivor or joint life annuities that continue to pay the second person, subsequent to the death of the annuitant till such time as the death of the second person as well. For instance, annuities can be organized so as to make payments to married couple which ceases after the death of the second spouse.
Types of Annuities:
Those annuities which make payments in fixed amounts or those amounts which improve by a certain percentage are known to be fixed annuities. On the contrary, variable annuities undergo the payment of amounts which vary in nature, based on the performance of the investment of a particular set of investments, typically including the equity mutual funds and bonds.
Apart from the fixed annuities, there are variable annuities. As indicative in the name, variable annuities are mainly used for varied objectives. The deferral of the recognition of taxable gains is one such common objective of variable annuities. The amount of capital deposited in case of variable annuities witness growth on a tax-deferred basis. This hints that until a withdrawal is made, the taxes on the investment gains are not due. Varieties of funds are offered by variable annuities from different money managers. This provides ability to the investors to shift between sub-accounts without having to incur any sales charges or additional fees. Annuities are basically products of insurance. They are mainly issued by those firms, which also issue policies related to life insurance. In addition, the risks that an issuer has to undergo are basically the same, for both insurance and annuities. In short, the insurance firm has to bet on the customer's life expectancy.
With the help of immediate or single premium annuity, the annuitant has to compensate for the annuity with a single lump sum amount. Regular payments are initiated by the annuity to the annuitant, within the span of a year.
Other types of Annuities:
The other form of annuity is the combination of the retirement payment plan and the retirement savings. In such types of annuities, the annuitant has to embark upon contributions on a regular basis to the annuity till a particular date. Subsequently, the annuitant gets to receive regular amount from the annuity till the death of the annuitant. In some cases, a life insurance component is also added to the annuity. This would help the beneficiary receive either annuity payments or lump sum amount, in case of death of the annuitant prior to the initiation of the annuity payments. Since Britain has made it compulsory for its retirees to convert the pension income into an annuity, the market for annuities has literally boomed in UK.
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