wealthfactsheet-life_insurance-annuity

4. Annuity
An Annuity is a long-term life insurance contract designed to pay a series of regular payments from a principal amount or capital consideration that a person invested with an insurance company.

The regular payouts or payments depends on the capital consideration invested and the payments partly consists of the capital consideration and the interest income of the capital consideration.

These policies usually either continue till the policy runs of of money or it could also be a policy which enjoys a life-time of income as long as the person lives.

Annuities are the direct opposite in terms of concepts when it comes to life insurance policies. In an annuity, you tend to enjoy more when you live rather than when you die. When death occurs to an annuitant (a person who purchase an annuity), usually the remaining capital or sum, whatever is left after withdrawals will be consider part of the estate of the annuitant.

Annuites are for people who are retired and want a stable income like a pension fund to supply them constant income during their retirement years. The main purpose is to generate a continuous stream of guaranteed income and it is a good financial hedge against the risk of living too long.

Types of Annuities:
1. Fixed Annuity
In a fixed annuity, an individual receives a fixed and guaranteed regular income for the term of the agreed contract. This term usually covers the duration of the individual's life. Fixed annuities also provide a guaranteed interest rate for the investment sum of the policy. The advantage of a fixed annuity contract is that it has a cash surrender value which can be availed in partial amounts or in its entirety before or during the annuity period.

2. Variable Annuity
Variable annuities acts like a conventional annuity except that instead of having a certain amount of annuity payments each month, variable annuity allows you to participate in extra growth opportunity and they offer both long-term growth potential and flexible payout options on retirement. They also offer unique benefits that make them an appealing investment alternative on their own.

Of all the retirement options available to you, only variable annuities give you: growth potential; investment flexibility; guaranteed retirement income.

3. Immediate Annuity versus Deferred Annuity
The payouts or payments are usually immediate upon the amount invested. While a deferred annuity will pay payments slightly later. Usually the deferred period is a few years.

4. Participating versus Non-participating
Participating annuities are policies that participates in the inusrer's profits. These profits are payable or are declared at the end of the calender year. Once declared, they are guaranteed and cannot be reversed. However profits may vary from year to year and they are normally called bonuses.

Non-participating only provides guaranteed income through a fixed amount of monthly payments. They do not have additional bonuses or interest income.

Benefits of Annuity
1. A good hedging financial instrument against inflation

2. Security. It is highly secure. With the guarantee, it provides a secured stream of retirement income.

3. Tax benefits. Depending on tax legislation of different countries, annuities usually have tax benefits. Some countries even practice non-taxable annuities.

Other types of Life Insurance:
1. Whole Life...
2. Endowment...
3. Term Insurance...
4. Annuity...
5. Investment-Linked...
6. Medical Insurance...
7. Critical Illness Cover...
8. Personal Accident...
9. Disability Cover...