Annuity Insurance – Meaning, Benefits and Types

Financial security is very important in today’s times, especially post retirement. With so many options available to secure your future, it can get very confusing as to where to invest your hard earned income and savings. While insurance policies seem to be one of the secure options, a lot of people are now going in for annuity insurance or annuities as they are also called.

Annuity insuranceis nothing but a contract entered into by an individual with an insurance company, wherein the individual agrees to pay a monthly premium. On retirement, the individual will get recurrent payments from the company for a certain number of years or they could even benefit the individual for the rest of his life. This is a kind of investment that guarantees you regular income even after you retire from employment. Annuity insurance is in a way a great pension plan that gives you lump sum advantages and some annuities also offer tax deferred payments.

When an investment is made in annuities, your principal amount is secure. You can withdraw any time in the future by paying a small fine without having to wait for it to mature. Annuity insurance gives you the flexibility to control your withdrawals. The biggest plus point of annuities is that it is guaranteed by the state insurance guaranty fund. The interest rates offered by various insurance companies on annuities are very competitive making it an attractive investment. Thus, one can choose the insurance company offering a higher rate and additional incentives. In the case of annuities, it is convenient to nominate a beneficiary as the formalities and procedures involved are not tedious and cumbersome. Besides, there is no immediate relationship between the annuity and your will.

Annuities are of several types like fixed annuity, variable annuity and equity indexed annuity insurance. A fixed annuity is one where the individual makes fixed payments for which he gets a fixed amount of return. In a variable annuity, you can choose the kind of investment you want. Depending on how the investments perform, you will get variable payments after retirement. An equity indexed annuity as the name suggests is usually linked to a financial index, say the S&P 500. The performance of the annuity is based on the performance of the index. Apart from getting market exposure, this annuity also gives a minimum amount of return.

Whatever kind of annuity insurance you choose, you could be rest assured that your investment is safe and will give you regular income for the rest of your life.

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