Types of Annuity Plans to Choose From

By Compuquotes Team on March 27th, 2008

People these days are becoming more interested in retirement plans. They want to enjoy the fruits of their labor at the prime of their lives. If you belong to this group of wise people and plan on getting yourself a good retirement plan, why not choose annuity? There are different types of annuity plans that you can choose from.

  • What's a good retirement plan?

A good retirement plan is basically composed of four things. First, the return from a retirement plan should be a guarantee. Second, the return should be more than the principal. Third, the rate of return should be stable. Fourth, the return from the retirement plan should be sufficient enough to cover living expenses plus a room for enough luxury.

All of these characteristics of a good retirement plan can be found in an annuity. As it is, a life insurance company is usually the one that offers annuity programs, although, in some cases, trust and charity organization likewise offer an annuity program of their own.

  • Annuity 101

An annuity is a contract between an individual or organization and a company offering such a financial investment plan. Both parties agree to a series of payments that includes the principal with the applicable interest rate.

This interest rate can either be fixed or variable. When we say fixed interest rate, the interest in the annuity payment was computed with a fixed rate regardless of market fluctuations. On the other hand, a variable interest rate will result to a variable interest amount.

In general, an annuity is perhaps the most flexible investment plan that you can acquire. You can achieve the long-term financial goal that you want using an annuity plan by buying the right annuity investment and choosing the best schedule applicable to you.

Being flexible, you can choose the right annuity plan for you. There are a number of categories of annuity plans that you can choose from.

1. The rate of return. As was mentioned earlier, an annuity return can either be fixed or variable depending on the assessment of the annuity holder.

2. Payout. An annuity payout can either be immediate or deferred. With immediate annuity, payment will start as soon as the annuity plan is purchased. On the other hand, for deferred annuity, payment will start at a later date as pre-agreed for both the annuity holder and issuer.

3. Annuity period. The annuity period can either be fixed or lifetime. For a fixed period annuity, payment will be made within the period of a pre-applied number of years, for example, ten years. For a lifetime annuity, on the other hand, payment will be made throughout the remaining life of the annuity holder.

4. Annuity tax status. An annuity investment plan can either be a qualified or non-qualified annuity. The money that is paid for a qualified annuity will not be taxable for the year wherein the annuity was paid. On the other hand, a non-qualified annuity will be taxable.

5. Mode of payment. This can be either a single premium or flexible premium annuity. For a single premium annuity, a single payment made funds the annuity. On the other hand, a series of payments will serve as a collective fund for the flexible premium annuity.

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