Benefits and Types of Annuity

Annuities are contracts in which insurance companies provide periodic payments in return for premiums you paid. Annuities are generally purchased for retirement income.
Annuities have benefits in every situation:
• For people who are rich, buy an annuity to secure future income, even if their assets are missing. They get certainty of income.
• For people with modest wealth, annuities can help provide a sustainable source of income so that it remains financially independent in the old days. In addition, they will be free from the hassles of managing investments and assets.

There are many categories of annuities, which can be classified according to the nature of the underlying investment, the accumulation period, the nature of commitment and payment of premium setting.

1. The nature of the underlying investments: fixed or variable annuities

Fixed annuity has a certain interest rate, similar to a bank Certificate of Deposit (CD). In a fixed annuity, the insurance company guarantees the principal and minimum interest rate. In other words, provided a good insurance company is financially, the money you invested in a fixed annuity will grow and not decline in value. Growth in the value of the annuity and / or income paid may be fixed interest. Growth in the value of the annuity does not depend directly on the investment performance of insurance companies that support the annuity. Some fixed annuities provide a higher interest rate than the minimum if the actual investment, expense and mortality experience of the company better than expected.
If you buy a variable annuity, your money can be invested in investment instruments multilevel return is not fixed, especially in mutual funds. The value of your money in variable annuity and the amount of money to be paid to you depends on the investment performance after deducting the cost of managing those funds. To provide certainty, the insurance company can provide assurance that funds your annuity will never fall below a certain value.

2. Accumulation period: deferred annuities (deferred) or immediately (immediate)

Deferred annuity has a future in which premiums and investment returns are accumulated prior to the periodic payments. Accumulation period can be very long, such as deferred annuities for retirement that lasted for decades until the employee reaches retirement age.
Annuities begin paying regular income of the period after the annuity is purchased. Period that depends on how often the income will be paid. For example, if the income is monthly, the first payment made one month after the immediate annuity is purchased.

3. The nature of the commitment of payment: fixed period annuities, fixed amount, or lifetime

Fixed period annuity pays income for a specified period, for example ten years. The amount of income that is paid does not depend on the age or the sustainability of life of people who bought the annuity (called anuitan). The amount of income that is paid only depends on the premiums paid into the annuity, the length of time of payment, and return on investment are accumulated. Annuities provide a fixed amount of income in a certain amount until the balance of premiums and investment returns paid out.
Lifetime annuity provides income for the remaining life of anuitan. A variation of lifetime annuities continues to provide income for up to two pairs anuitan died (joint-life annuity). The amount paid depends on age anuitan, premiums paid into the annuity, and investment returns are accumulated.
Types of lifetime annuities are used as retirement benefits typically provide periodic payments every month until the lifetime of the main participants, then proceed spouse (widow / widower) of 60% of the monthly benefit of a major participant, then down to son for 33.33% of the pension benefit widow / widower of a maximum of up to three children who have not reached the age of 25 years, unmarried and has not worked.
In a lifetime annuity, a source of income comes from three "wallet": Your investment, investment earnings and money from a pool of people in your group who died earlier than you. This is a typical setting on annuities, annuities that allows the company to guarantee income for life.

4. Premium payment arrangement: single premium annuities or flexible premium

Single premium annuity is funded by a single payment. Single premium annuity can be deferred or immediate. Most single annuity pension funded from savings due to the Pension Fund (Pension Fund). When you joined as a participant Pension Fund, at the age of your pension, your pension balance 80% will buy a single premium annuity. Periodic payments from an annuity is tax free because it is considered as an insurance benefit.
Flexible premium annuity is an annuity funded by a series of premium payments. Deferred annuities are always flexible, which is designed to have a long enough time to accumulate premium and investment income before the money can be paid regularly.
An annuity can be classified in several categories at once. For example, an annuity purchased from pension funds disbursement of maturity are fixed annuities, single premium immediate life-long. That is, the annuity is funded from a single premium, are invested in fixed-income investment instruments and the payment of benefits immediately in the next month until anuitan lifetime.