Basics Of Annuity Products And Rates For Annuities
An annuity is a contract between an individual and an insurance company. The annuitant (buyer) first pays in an amount mutually agreed upon, in return for which the insurance company agrees to make regular payments to said annuitant. There are many possible ways to do this, and the annuity rates will differ accordingly.
The annuitant can pay in the amount in increments or make a one time lump-sum payment. The interest rate on this amount paid in by the annuitant to the insurer can be fixed or variable. The fixed option is good for those looking for a safe post-retirement income, while the variable option may provide higher yields than a traditional retirement plan.
Regardless of this choice, a higher interest rate equates to higher monthly payments for the annuitant. Another choice the annuitant has to make is whether to defer getting the payments until a later date, or start receiving them immediately. Also, the time period of the contract can be set or the annuitant may continue to receive the payments until death.
Apart from these basic options, there are some sub-choices within. As an example, consider an annuitant who chooses a fixed-rate, deferred payment product. The product can be like a CD, wherein the insurer offers a fixed rate which will be in effect as long as the contract is valid.
Another way a deferred and fixed rate product can work is by keeping it annually renewable. This means the insurer gets to set a new rate each year. It will be the same rate for a year, but the insurer has the authority to reset this rate for each successive year as long as the contract is still valid.
For immediate annuity rates, the factors are different. The annuitant’s age and sex will impact the rate, and so will the method of payment chosen. In a nutshell, an annuity is an attractive investment option for those who need a steady income stream, with the added flexibility of taking the distribution immediately or defer it until later.
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