What is an annuity contract?

Annuity concerns a number of regular payments to the person made for a specified period of time. The annuity contract is a financial product purchased from an insurance company. Annuitant or buyer invests a certain amount of money, either in a flat payment or through a number of payments. In exchange, the buyer receives a return on their investment with earnings later through regularly scheduled payouts.

There are several types of annual contracts. Delayed annuity is purchased as a long -term investment. The purchase price is invested by the company and is repaid for regular additions from a later date, usually after retirement. The immediate annual contract is purchased with a flat -rate amount of cash, with payouts starting in one year. These payments continue throughout the life of the annuitant and are often purchased pensioners who are interested in guaranteed income. In the US, this can be set up as an individual pension account (IRA). The United Kingdom offers a citizen who has reached the age of departureretirement and has a qualified pension the opportunity to take without tax, partial distribution of a flat -rate sum. This can also be used to buy an annuity contract. In most cases, the annuity payments according to these plans will be considered a common taxable income.

Analuity contract can also be purchased with funds after taxation. When Annitant receives his payments, a part that is considered to be a return of the investment is not subject to a tax. The insurance company predicts how many payments are expected for each annuity, based on the length of life Annitant. By multiplying this number with the amount of each payment, an estimated total payout can be estimated. The ratio between the expected lifetime pay for the amount invested is the Thtej ratio to determine how much of each payment is taxable.

Fixed annuity contract guarantees a specified amount of money for monthly payers for a lifetime. This amount is based on the Buyer's investment and its lengthI life at a time when it is to be scheduled to start payments. The insurance company can invest funds in any way he wants. If the investment loses money, the annuity payments remain the same and the insurance company absorbs the loss. If the investment earns more than a lifelong payout, then the insurance company maintains a profit.

Unlike fixed annuity, a contract with variable annuity does not guarantee the specified amount of payment. In this investment vehicle, the buyer takes the risk. Its payment is associated with the performance of funds in which its annuity is invested. While the annuity variable has greater potential for profit, it also has a greater risk of loss. As a result, this should only be cited for long -term investment purposes.

While the annuity can be a great retirement plan, no product is suitable for everyone. Before purchasing an annuity contract, the investor should carefully assess his needs and risk tolerance. Consultation with a financial advisor, preferably one who does notIt is a commission for the sale of a particular product, it can be a great help in navigating the sometimes confusing world of annual contracts.