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Annuities For Dummies- How They Work

Annuities are gaining popularity everyday with the strong framework of their design and the foundation of faith. They are the twenty-first century savings tools. You can buy an annuity if you need to save significantly, or want an investment vehicle that reduces taxes and grow your savings, or to ensure a steady flow of income. A fixed annuity is the safest and suits all these requirements, but how? Here’s a little information on annuities for dummies – a peep into how they work.

Annuities - how does they work?

When you buy an annuity, you actually sign a contract made between you and an insurance company that is selling the annuity to you. The conditions are:

A) You deposit a particular sum of money with the insurance company. You can make this deposit
  • In a lump sum, or
  • In small amounts over a period of time
B) The money you deposit with the insurance company keeps growing at a particular rate
  • If the rate at which your money grows is fixed, you have a fixed annuity
  • If your money is divided in several sub accounts and invested in the stock market, the rate at which your money grows will vary according to the stock market, and you have a variable annuity
  • If your money is divided in several sub accounts and invested in the stock market, yet a minimum level is promised to you beyond which your gains will never fall, you have an equity-indexed annuity. This reduces the inherent market risk that is evident in the variable annuity.
C) The insurance company, in return for your deposit, will pay you the value of your deposit at a future date along with the gains they have earned for you, in a manner you select
  • You can choose to get paid specified amounts at regular intervals for a certain time – this is a Term Certain Fixed annuity
  • You can choose to get paid specified amounts at regular intervals for life – this is a Fixed Life annuity
  • You can choose to get paid as soon as you complete depositing the total price for your annuity – this is a fixed, immediate annuity
  • You can choose to get paid at a later date, perhaps, after your retirement - this is a fixed, deferred annuity

Therefore, you have a wide range of annuity options to choose from. In every case, the deposit that you make with the insurance company is the price of the annuity, against which you are financially insured, for the period you choose. Identify your requirements and match them with the benefits offered by the annuities, to select the appropriate annuity for you.

What is the buzz about tax deferral in the annuity market?

Most annuities available in the market come with the tax deferral feature. It means that your income from the annuity will not be reported for tax unless you start withdrawing the money. You can, therefore, continue earning the interest on the money that you would otherwise have to pay to taxes. This simply means that your savings grow faster.

If you are new to annuities and need more information, Click here or call www.AnnuityLibrary.com toll-free at 1-800-998-4056.

 
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