Nevada Annuities » immediate annuity http://www.nevada-annuities.com Let's Talk About Annuities Thu, 08 Dec 2011 09:05:12 +0000 en hourly 1 http://wordpress.org/?v=3.3.1 Annuities Explained, an Explanation of Annuities http://www.nevada-annuities.com/annuities-explained-an-explanation-of-annuities/ http://www.nevada-annuities.com/annuities-explained-an-explanation-of-annuities/#comments Mon, 22 Aug 2011 15:54:13 +0000 Nevada Annuity Man http://www.nevada-annuities.com/?p=1480 Yet Another Related Posts Plugin.]]> Annuities Explained, an Explanation of Annuities


annuities explained

If you are like most people, having annuities explained makes them easier to understand especially if you are not a finance oriented person. Hence, the simple explanation of annuities is that they are term deposits with insurance companies.

An annuity can be compared to bank certificates of deposits (CD) but unlike a CD an annuity is not insured by the FDIC. However, the issuing insurance company guarantees its annuities.

The industry started with two types of annuities, fixed annuities and variable annuities, then added an index annuity. The nice thing about all three types, as far as annuities explained, is they have a lot in common so it makes them easier to understand.

Fixed annuities are exactly that. A look at their features will illuminate their mechanics. As stated above, your principal is guaranteed by the insurance company. The guarantee states your annuity will never decline.

You make money each year because the insurance company adds interest to your deposit. The deposit compounds on an annual tax deferred basis.

The fixed annuity carries a specific term. You decide the term you want. It is fair to say the longer term you select, the higher the interest rate you will receive.


what is an annuity

The interest paid on your contract is tax deferred. This means you do not have to report it on your yearly tax return. However, when you begin to withdraw from the contract, you probably will incur a tax obligation.

Almost all annuities allow you to withdraw 10% of your balance annually without charges. But, if you withdraw more than 10%, you will be faced with surrender charges commonly known as withdrawal penalties.

Like a CD, fixed annuities offer an initial one-year rate. After this initial period, the rate changes. On the other hand, some companies offer a multi-year guaranteed rate. This means the quoted rate is the locked-in rate for the entire guaranteed period.

A variable annuity revolves around mutual funds because your premium is invested in mutual funds.

Therefore, you are not receiving interest from the insurance company or financial institution selling it. Variable annuities do not have guarantees. Hence, your investment may go up or you could lose principal. Obviously, this depends on the mutual funds you select.

Index annuities could be called a hybrid annuity. Like a fixed annuity, your principal is guaranteed. However, the interest paid is split into two components. One is a declared side of the contract with the other side of the contract tied to an index. The S&P 500 Index is the most common index used by insurance companies.

Some index annuities do not have a declared rate side of the contract so all of the premium is tied to the index. This means your principal is guaranteed but your interest isn’t. If the index rate rises, you could get a substantial interest payment. However, if the index goes down, you won’t lose any principal but you won’t get any interest either.

Always use Nevada Annuities to get annuities explained properly and completely.

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]]> http://www.nevada-annuities.com/annuities-explained-an-explanation-of-annuities/feed/ 0 What is an Immediate Annuity? http://www.nevada-annuities.com/what-is-an-immediate-annuity/ http://www.nevada-annuities.com/what-is-an-immediate-annuity/#comments Sun, 31 Jul 2011 20:28:21 +0000 Nevada Annuity Man http://www.nevada-annuities.com/?p=1441 Yet Another Related Posts Plugin.]]> What is an Immediate Annuity?

An immediate annuity, is a financial contract between an insurance company and an annuity holder. As the name suggests, the annuity holder will receive payments from the insurance company soon after the signing of the contract. The payments almost always run for the life of the annuity holder.

Immediate Annuities which are also known as single premium immediate annuities or immediate income annuities were originated in the 1860s by the Equitable Life Assurance Company. Way back then they had a different name though, they were called tontines. The individual paid a lump sum to the Equitable and in return received guaranteed, lifetime income payments.

As one could certainly imagine these contracts became enormously popular as time moved on. Over the course of the next 40 – 50 years, the tontine, or financial contract, took on the name of its plan of payment – annuity. And that is how you and I know it today.

Then came another twist happened the twentieth century. The insurance companies learned they could also defer the payment of annuities. That is, they could accept either a lump sum payment or regular payments over a period of time and not have to begin paying out immediately.

This gave annuity contracts a dual personality. These new annuities were called deferred annuities because the payment to the contract holder was deferred out to some future point in time.

With a deferred annuity there are two phases. The first is known as the accumulation phase, in which the company invests the payments made by the holder. The second is the distribution phase, also known as the annuitization period, in which the company distributes the invested earnings to the holder over the remainder of his or her life.

Annuities lacking this payment postponement feature are immediate annuities. The first payment in an immediate annuity contract is made in accordance with the payment-frequency terms stipulated in the contract. They could be made in monthly, quarterly, semi-annual or annual payments.

A holdover from the last century that still exists today is the standard distribution plan. This being a lifetime distribution meaning the annuity holder receives level payments for the remainder of his or her life.

When the holder dies, the insurance company claims any remaining undistributed funds. The insurance company calibrates the annuity payout to the holder’s life expectancy. That is just one method the insurance company uses to guarantee a life time payout.

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