Annuities in Brief - Understanding Annuities

By Compuquotes Team on March 27th, 2008

Annuities are an investment tool that appeals to many people. There are several types of annuities. Annuities are similar to life insurance in that you pay the insurer premiums. Typically someone deposits money into an annuity account and that money accrues a value over a set period of time sometimes referred to as: maturation. During the maturation period the money in the account cannot be withdrawn without incurring a penalty. Once maturation is reached the annuity begins to pay out either fixed or variable payments depending on the type of annuity to the account holder. These payments can often be referred to as dividends. Dividend payments could be paid to you monthly or yearly depending on how your annuity account is set up to distribute dividends.

There are annuities that can pay out the whole sum of the value that the annuity account has accrued at once. There are also annuities that will continue making scheduled dividend payments to survivors after an account holder has died. A beneficiary would need to have been designated before the death of the account holder for this to occur though.

Annuities carry with them many of the same risks that life and other insurances do. An insurance company could go belly up and not be able pay what is owed to account holders. Annuities are intended to be another investment tool for you to add to your retirement and financial portfolio. You should not invest all of your money in annuities. To balance the risks across the board, you should include other investment tools such as life, and long term insurance to protect yourself from market changes, rising costs, and other events that could reduce your holdings.

Don't let the potential risks involved scare you away from making an investment in annuities or life insurance for that matter. You stand a much greater chance of losing a lot more of the money you have set aside for retiring on by not having the protection offered by these investments I can assure you.

You may live longer than you expected, many people are doing just that today. This may mean that the retirement plans that you made yesterday may fall short should you indeed live longer than you expected to. The payments from an annuity could help supplement waning retirement funds to give them some added flexibility and longevity. Home, health, food, fuel, and medication costs are on a steady increase. Dividends from annuities and other investments can be used to make sure you are able to live comfortably, even living longer.

You should consult with a financial professional to learn more about the benefits and risks associated with annuities and for recommendations of the annuities that would pay you the maximum amount of money for the longest period of time. That way your longer years will be well funded. A mistake many people make is to purchase annuities without fully understanding how they work and when they will begin paying dividends to account holders, and how much those payments will be.

Which type of annuity would be best for you will depend on your current financial situation, and the goals you have for retirement and long term care should you need it. You must think about things like an unexpected illness or severe injury occurring and from which investment vehicle it would be easiest to get money from to pay medical bills and support yourself with. In a lot of cases, your annuity account may be the easiest to access in times like this, but make sure you understand the policies concerning your annuity before relying on this investment to cover you during a sudden illness or severe injury.

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