Understanding Annuities
October 20th, 2009
There was a time when annuities were extremely popular. Though a decline in the popularity is evident but lots of people still opt for annuities to enjoy some benefits.
Most people have trouble understanding annuities. If you don’t know much about annuities, it is enough to know that it is nothing more than an agreement between you and your insurance company. Everyone can get benefited by this option but not all insurance companies can sell it. To sell annuities, an insurance company has to be regulated by the insurance commissions in that specific state. A license from the Securities and Exchange Commission (SEC) or the National Association of Securities Dealers (NASD) is also required to sell annuities.
Advantages and disadvantages of annuity:
Basically, an annuity is all about paying some amount of money to your insurance company to get regular payments after a specific period of time. So, an annuity is used by those who want a specific amount of money for desired number of years. What it means is that annuities allow you to live a comfortable life even if you don’t know how to earn money. You will be able to have peace of mind by buying an annuity and that is the biggest benefit of annuities.
The benefits of annuities change with the type. Basically, you will have to decide between the deferred and immediate annuity. Deferred annuities are perfect for those who don’t foresee a need of money and believe that they will need money only after several years. The good thing about deferred annuities are that you can request lump sum money after your retirement. Also, you can take money when you want or you can choose the option of receiving a set amount of money every month.
This type of annuity is quite beneficial but you will have to pay a penalty if you want to withdraw money before the stipulated date. In most cases, there will be a 10% penalty and you will have to pay the income tax over on the total amount of money. It is due to this particular reason that immediate annuity is better than deferred annuity which is secure and simple. It also provides you with facilities like high returns and safety of principal amount.
The fact of the matter is that if you want to enjoy a stream of income payments for the rest of your life or for specific period of time, you need to buy annuity as there is no better option than this. But, before opting for annuity, you need to check your requirements and needs. Choosing the right type of annuity is essential for you and this can be done only after determining your needs. So, take your time and make a right decision as it is the matter of your whole life.
Author: Armen Wilson
Article Source: http://EzineArticles.com/?expert=Armen_Wilson
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