Chapin & Irmo Annuity & Financial Services Experts
What Is An Annuity?
We all know that insurance is an essential aspect of anything that involves assets, properties and other things we own that need protection. There are insurances such as renter’s insurance, landlord’s insurance, car insurance, and there are also insurance policies for our health needs. But aside from insurance policies, there are also annuities that can be very practical and critical to the success of a business or related endeavors.
What is an annuity exactly?
To be clear about it, an annuity is a term used to refer to a contract made between you and a third party. Usually, the third party is an insurance company. The contract is created when you pay a lump sum amount. Part of the contract also are the four things that the third party or insurance company will promise to deliver because of the payment you made. These four things are:
- Provide for asset growth or accumulation
- Provide an income for life or for a certain period of time
- Provide care benefits for long term
- Provide a death benefit
With these, it simply means that an annuity is a financial tool that small, medium and bug businesses can use to further expand their operations or to invest in other types of businesses. Being a financial planning tool, an annuity is so powerful especially when used properly and for the right reasons. You can enjoy a tremendous value when you also make sure that you use it in the right situation. As an investor, you can greatly rely on the power of annuities particularly if want to establish security and stability. To achieve these, however, you must make sure that you use it in a very efficient manner.
But unfortunately, there is a huge number of annuity buyers that make the mistake of misallocating their resources whenever they purchase annuities. They usually end up with annuities that are underperforming, pays too little, and, at the same time, costs too much. All these happen because the resources are used inefficiently.
To make the right decisions and to be able to buy the right annuity, it is very important to know about the two different types of annuities. These are the fixed annuity and variable annuity. It is essential to know the differences of these two types of annuities.
What are variable annuities?
With a variable annuity, buyers like you can expect a variation in the principal value. Your money is allocated to sub-accounts and the values generated based on the performance of these accounts are what determines the principal value. These are viewed or considered as investments. Individuals who are licensed to sell both annuities and investments are the ones who can sell these type of annuities that are also viewed as investments.
What are fixed annuities?
A fixed annuity has a key feature and that is the fixed principal value. The insurance guarantees the fixed value of the principal. With a fixed annuity, buyers like you can take advantage of the following:
- Deferred annuities where payment of income starts on a later schedule, which is usually between 1 to 50 years
- Immediate annuities where payment of income starts immediately, which usually start within one year
- Indexed annuities where there is value that depends on the performances of baseline indexes such as Gold, Dow Jones, Real Estate, or S&P 500
- Multi-year guarantee annuities where a fixed rate of interest rate is paid annually for a determined period of time
With these, it is very clear that buyers can enjoy gains annually. In particular, they can have access to gains that are locked in yearly. In addition, buyers can resort to mixing and matching of the different types of annuities for them to create a guaranteed stream of income especially during retirement. What is even better is the fact that these streams of income are not influenced by market influences, interest rates or other influences typical in the market. Lastly, these are the best options for individuals who are conservative because these are regulated as insurance products and not as investments.
Are annuities important?
With all the information above, yes, annuities are undeniably of great importance. For some, it is an excellent idea to buy annuities if you have retirement resources that are scarce but you want to enjoy a good and guaranteed stream of income during retirement. With annuities, you can grow your scarce resources without the unwanted risks, surcharges, penalties, taxes and fees. Another way that an annuity can greatly help is when you financial problem or requirement in your business. You just have to choose the right type of annuity and you’ll reap the benefits.