Introduction to Annuities
Annuities are flexible insurance contracts designed to provide income and help you achieve long-term savings goals. And these are not unused financial vehicles: last year alone, annuity sales topped $200 billion.
Much like a CD is a financial product offered by a bank, an annuity is a long-term product offered by an insurance company. In essence, the same company that insures your home or protects your family may also help you save for retirement.
After making a single lump-sum premium payment, or a series of periodic payments, individuals can then receive regular annuity payments from the insurance company. These payments can be made over a definite period of time, or they can last a lifetime.
Payments to the annuity owner can also be tailored to begin after the contract has been established for a number of years, or they can begin immediately after the first premium payment is made.
Annuity owners even have the choice of receiving regular fixed interest rates (better known as a “fixed” annuity).
Over time, insurance companies modified and enhanced both types of annuities; however, their basic premise has always remained the same. And because annuities are issued by an insurance company, Congress allows them to grow tax-deferred under current tax laws.
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