What are Annuities – How Immediate Annuity is Better
Jul 1st, 2008 by Master
When it comes to the availability of saving vehicles many option are available. These options include traditional passbook saving account, certificates of deposits, bonds, your piggy bank and money market accounts. Some people forget to include annuities in this list
What is this annuity and how is this relates to this list? Annuity is basically an investment vehicle that works very similar to certificate of deposits issued by banks. It is basically an insurance product offered by insurance companies. In this type of investment a series of continuous payments is offered in exchange of an up front payment which you can say initial investment. This is best option to maximize your income if you are senior with good health. Annuity is basically of two types; immediate annuity and deferred annuity. In normally speaking when annuity is spoken, it means immediate annuity.
In an immediate annuity a series of increasing or level periodic payments are offered to the customer. His can be done either for a fixed number of years or until the death of customer. In this type of immediate annuity there is a variant in which payment for lifetime is made and it is also known as pension.
Deferred annuities are also classified into two types. Fixed annuity and variable annuity. In a fixed annuity annuitant is offered a guaranteed rate of return against his initial payments. It can be either up to the age of agreement or up to the life of annuitant. In a variable annuity as from the name is depicted. Return remains variable and also the accounts are initial funds are not deposited in the same account but in different account like mutual funds in a tax deferred manner. In this type of annuity fess are normally higher than immediate annuity. Here return on funds changes quickly and can be very high or even very low depending on the performance of fund in which you have deposited.
Now which type is better for you? Depending on the description of both types, I will surely prefer immediate annuity over deferred annuity. Since interest rates in this type of annuity is lower so for those who have just got big income either from inheritance or from lottery should prefer this rather than making some quick up and downs and loosing the whole money straight way. Best thing in this type of annuity is the option of receiving money either for a fixed period of time or for lifetime. Another thing about it is being the simplest available option in all types because you will not need to mange portfolio. Finally, this type of investments is best for seniors and people with big unexpected money but before you decide to go for annuities, you should talk to annuity insurance company about all available options.
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