What Types of Annuities Are There?

By Compuquotes Team on January 2nd, 2009

When it comes to investing and planning for the future, there are many different choices. The same can be said about annuities, as there are many different variations and types of annuities for investors to choose from. The most common types of annuities that you may have heard of include immediate annuities, deferred annuities, fixed annuities, variable annuities, single pay annuities, multi-payment annuities, straight life or joint annuities, and survivor or cash refund annuities.

The most common type of annuity is actually the fixed annuity which means that the interest rate is fixed, or guaranteed. With a fixed annuity, the money you invest into it will continue to grow and will never drop in value. This growth may be determined by a particular interest rate or a fixed dollar amount. Typically, fixed annuities are the most secure for investors.

Within the realm of the fixed annuity are two very common categories including the equity indexed annuity and the market value adjusted annuity. Equity indexed annuities guarantee the interest rates and combine payout based on the performance of a certain specialized stock. It is almost a hybrid between the traditional fixed annuity and the variable annuity. The market value adjusted annuity allows investors to choose both the interest rate and time period over which the annuity will mature. With this type of annuity, early withdrawal is also not as critical.

Variable annuities are a little different from fixed annuities in that they pose a greater risk to the investor. The money that is to be paid out to you at the time of withdrawal is directly determined by the performance of the funds and the investment. Many times, the funds associated with variable annuities are invested in money market accounts, the stock market, and other similar vehicles. This differs from the fixed annuity which is usually based in government bonds. Variable annuities are regulated by the federal Securities and Exchange Commission as well as state insurance departments.

Immediate annuities and deferred annuities are also very common types of annuities. The former is designed to pay the income to the investor at a specific time almost immediately. It just depends on how often the payment is to be made. For example, if you choose to receive monthly payments you will receive your first payment one month after you have bought the annuity. Deferred annuities allow investors to receive premiums and payouts at a later time. Deferred annuities can remain in the deferred stage for years, depending on your contract.

Regardless of the type of annuity you purchase, you will always want to do so from a reputable company. A company that is teetering on financial duress with poor customer service is not one you will want to place your investments in. Before signing any contract or handing your money over, always do a little research on the company, check its ratings and financial standings, and be sure you are a well informed consumer.

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