What is an annuity?

Question

What is an annuity?

Answer 1

You give a chunk of money to someone who promises to invest it and pay you "returns" for a set period.  Annuities tend to be for long periods.  You give someone $100,000 when you are 60 and they agree to pay you $10,000 a year.  If they pay you for 20 years, you made a lot of money.  If you might die next year, you better read the fine print closely.

The downfall of an annuity is that you can never predict the future.  If you give someone $100,000, what guarantee do you have that they will still be in business in 1 year?  10 years?   You don't .  they are a private company and they might go out of business tomorrow.  NOthing is risk-free in the  world of investing.

Answer 2

A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. Annuities are primarily used as a means of securing a steady cash flow for an individual during their retirement years.

in simple terms, its product where a person is required to make a series of payments say monthly or yearly until a certain period so that at the time of your retirement you will receive a regular payout or benefit for your whole lifetime or until a certain period like until the death of spouse or certain number of years previously stipulated on the contract. there are many other options to alter the payout method.

Answer 3

An annuity is an insurance contract. An annuity contract is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner in several ways.

Answer 4

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Answer 5

an annuity is the reverse of life insurance but with more than one option for payout. A life policy is for the possibility of dying too soon and an annuity is for the possibiity of living too long. You can buy an annuity that will pay you income for as long as you live, even if you live to be 273 years old. You never know what these stem cell things will do. Think about living to 273 and you can see why anniuties can be an important part of your portfolio.

Answer 6

An annuity is an investment vehicle which is sold only by insurance companies. Most annuities have death benefits built into them.  You deposit a certain amount of money, and let it grow tax-deferred. Any taxes on interest earned are deferred until the money is taken out.  You cannot take money out of an annuity before the age of 591/2, or you will incur a penalty.

There are many different types of annuities:

fixed annuity:  stated guaranteed interest rate for a period of time--this it the closest to a CD in the way it works.  You deposit money, it grows, you take it out when the surrender period is over.

variable annuity:  no guaranteed interest rate--performance is dependent upon the subaccounts (which mimic mutual funds) that you choose to invest in.  There is a death benefit (usually) which would pay your initial investment to your heirs, regardless of current value, should you die. These also have a great number of "living benefits" which can be added.

immediate annuity: you deposit a certain amount of money--it is immediately "annuitized"--meaning you begin receiving a stream of income for a specified period of time. That period of time can be for a number of years or life, depending on what options you choose.

There are many other "flavors" of annuites, including EIA's or equity indexed annuities which are the cause of much scrutiny by some of the regulatory organizations.  These can be quite complex.

Bottom line--make sure the investment professional you choose really understands the ins and outs of annuities.  DO NOT take an annuity with more than 4 years of surrender charges (withdrawal penalties) if at all possible.  NEVER buy an annuity with more than 7 years of surrender charges.  If you are interested in variable annuities, ask about "no-load" variable annuities which can have considerably less hidden expenses.