Basic Understanding of Annuities

We’ve done our best to help you Understand Life Insurance and explained the differences in Whole & Universal Life as well as Mortgage Protection and Term Life products. In this article we’ll explain the basics of Annuities.

An annuity is an investment product offered by an Insurance company that, in some cases, carries a death benefit option, and is designed to protect in the instance one outlives his or her pension, retirement benefits and/or savings.

Funding an annuity can be done with one of several options.

• Single Premium – a single lump sum of $5000 or more.
• Fixed Premium – monthly or annual payments of a set amount.
• Flexible Premium – monthly or annual payments of a minimum amount with the option to pay over and above. Usually has a maximum. EX: Minimum might be $100 a month but you can add $10,000 annually.

There are also several options for receiving money from an annuity.

• Straight Life – investor receives a set amount of monthly income for the duration of his or her life; Insurance company absorbs any remaining balance in the contract.
• Life with Refund – investor receives set amount of income for life and any remaining balance in the contract goes to his or her beneficiary.
• Period Certain Life – insured or his/her beneficiary receives set amount of income for certain number of years.
• Joint Life – two recipients; pays as long as both are living. If one dies, the remainder of the contract balance is absorbed by the insurance company.
• Joint Survivor – pays as long as either recipient is alive.
• Period Certain Joint Survivor – pays as long as one (or both) recipients are alive; any remaining balance goes to their beneficiary.
• Fixed Amount – Annuitant (investor) receives a fixed income for life with beneficiary receiving the balance of contract (if applicable).

Annuities are paid out in one of only two phases: Immediate or Deferred. With an immediate payout option, the investment is made (EX: $50,000) and the insured (or recipient) begins receiving the agreed upon income installment immediately or usually within 30 days. If the deferred payout option is chosen, the recipient begins receiving the agreed upon income amount after the contracted investment or accumulation period. EX: $50,000 investment and will begin drawing at certain age or in X number of years.
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For more information on Annuities and how they work, check out these articles by Nationwide, New York Life and Investopedia or give us a call and speak with our Life Insurance Specialist.

Until next time, take care and remember…. Planning for retirement requires careful consideration of what will happen should you outlive your savings.

​Tommy Curtis and Staff

​*Annuities vary by company and type of investment. This material has been provided for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.