An annuity is defined as a contract that is made between two different parties one being the purchaser and the other being the insurance company which is designed with its objective of the retirement purposes. These contracts are signed up for long terms between the two groups. Here either the purchaser makes a single contribution or a long term contribution which varies over a fixed duration of time. After this the insurer makes payments on a periodic basis to the purchaser which starts at a particular date in futures that is during the period of retirement.
What is the main purpose of annuities?
Initially the main objective of annuities is to provide insurance against some kind of superannuation or the issue of outliving an individual’s income streams. But with growing advancement in this field the modern day annuities also provide additional facilities like they pay for disabilities or even long term care. Other than that they act as the shields for rich individuals who have high income as it provides tax shelters.
How do they differ from life insurances?
Now these differ from the life insurances in the way in which they perform. While on one hand life insurances pay the insured amount after the death on the other hand annuities pay the annuitants while the person is still alive. Thus the annuities are the promises made by one party to the other that they will be making a series of payments for specific time duration or until any particular event takes place like death of the person who was being paid the annuitants. Thus annuity are those products sold in the financial markets by any particular financial entity which is designed in such a way that they focus on acceptance and the growth of funds form a particular individual and then pay them back in future.
Benefits of annuities
- Guaranteed lifetime withdrawal benefit
This is a benefit which ensures the return of the purchase payments via withdrawals that are made annually even if the contract vales come down to zero, for a fixed period of time or even for a lifetime.
- Tax-deferred growth
The first benefit is that the amount that is earned from the annuity investments is free from income taxes. So you don’t have to pay any taxes for that.
- Death benefit
In case if the person who has made the purchase for annuities dies, then the designated beneficiaries will automatically start getting the payment and they don’t have to go through probate.
- Lifetime income benefits
When you invest in annuities they provide plenty of options so that you can receive them for the rest of your life after your retirement. This also includes the option in which if you want you can also opt to continue making payments to the beneficiaries as well for the time duration that you want to.
Thus the annuities come with so many benefits and are quite a smart investment strategy. It not only insures a stable income after your retirement but also decreases the burden of income taxes.