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A Primer to Buying Annuities

By: Aeronx Mc Mall

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Annuities are broad investments issued by insurance companies. They are generally linked to an insurance policy and widely used as retirement savings mechanisms. Depending on what stage of life you are in, how much money you have to invest, and when you would like the policy to mature, there are several types of policies that you can choose from. Annuities also have several benefits compared to general bank deposit investments and bonds, making them attractive investment options.

Different Types of Annuities

There are several different types of annuities. These include Fixed Annuities, Immediate Annuities, Equity Indexed Annuities and Variable Annuities. Often the best investments will combine more than one type of annuity into an investment portfolio. Certain annuities are more suitable for retired people and others are good savings mechanisms for younger executives. Knowing which annuity is right for you will depend on what type of return you want on your investment, how much risk you are willing to take, the length of the investment, and the amount of money you have available to invest.

More Secure Investment Options

For the conservative investor, fixed annuities are considered one of the more secure investments. This is also one of the simplest types of investments. A fixed annuity is an investment with an insurance company. The policy gives you a fixed return over a fixed period of time with a guarantee that you will get back your original invest amount plus any interest after the investment term is up. There are also two types of fixed annuities: CD-Type Fixed Annuities and Traditional Fixed Annuities. The main difference between the two is that traditional annuities may have an earning percentage that is linked to the interest rate and can therefore fluctuate. The other reason that fixed annuities are popular with retirees is that you can still access the funds if you need to. So if you land up in hospital and need money to cover your medical expenses, you can withdraw funds from the investment policy.

Investment Options That can Produce a Higher Return on Investment

Equity Indexed Annuities generally offer a guaranteed minimum interest rate which is less than what's offered on Fixed Annuities. However, Equity Indexed Annuities have the option of being linked to the stock market and if invested wisely, you can earn a much higher return on your investment. The downside is, of course, that the stock market can be very volatile from time to time. To get a really good return requires a good knowledge of the financial markets and stock market investing and a good measure of luck. Equity Indexed Annuities are good options for people that have additional money to invest and are not risk averse.

What are Benefits of Investing in an Annuity?

One of the main benefits of investing in an annuity is that you get a tax deferral benefit on your investment. This means that you can derive a greater benefit from compound interest as your investment grows year to year. The only time you are taxed on the annuity is when you make withdrawals on the investment or when the policy matures and you withdraw the funds. Conversely, on CD bank savings plans, you get taxed annually on your investment regardless of whether you make a withdrawal or not. Because the CD-type fixed annuities are so similar to CD bank investments but offer the tax deferral benefit, many people view them as the preferred investment option. The other benefit of annuities over bank CDs is that you can access the funds in your investment at any time. Most annuity policies will allow you to withdraw between 10 and 20 percent of your investment annually. Depending on the maturity of the policy, you may even be able to withdraw the full investment amount. Sometimes there are penalties involved for the early surrender of the policies. This is something you should be aware of when looking to invest in an annuity.

How do you go About Investing in an Annuity?

It's always a good idea to first familiarize yourself with the different types of annuities and investment policies. Get to know the industry jargon, what the standard interest rates and fees are on the different types of policies, and what type of investment portfolio you are looking for. Then when you start to talk to different investment companies and brokers you will already have some insight into the industry. There are many slick salesmen that sell a policy simply because they earn a good commission on it and not necessarily because it is a good investment. Being knowledgeable will help you avoid that situation and allow you to choose the best possible investment for your money.

Article Source: http://depositarticles.com/

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