Fixed Annuity

A fixed annuity is considered the perfect way to help investment income stabilization, and are commonly preferred by individuals who aren't actively participating in the workforce, about to retire or already retired. Fixed annuities are a form of insurance, offering the owner of the annuity also known as the annuitant, a fixed amount of income received at regular intervals until pre-determined period ends or specific event occurs.

As with anything in life fixed annuities have both advantages and disadvantages, and have many types and options to pick and choose from, which can be added for a small extra cost, to your basic policy. Lets have a look at the different types of fixed annuities and their advantages and disadvantages.

A fixed annuity can be purchased from selected insurance companies as well as financial institutions with a one time payment or it can be contributed to periodically while the annuitant is still working. There are two typical types of fixed annuities; the deferred annuity and the immediate annuity payout. The funds invested in a dferred annuity are guaranteed to earn a fixed return rate of return from beginning to end of the annuity accumulation phase. It's during this phase, that the money invested minus any payouts will continue to grow at the pre-determined fixed rate. The immediate payout method seeks to provide income for a set period of time rather than deferring savings to a later date. It is, however, important to note that in some instances, annuitants never live long enough to claim the full annuity investment. Should such an unfortunate event occur, the remaining annuity savings amount will be passed on to the insurance company that sold them the annuity, assuming the anuuitant chose this option. You may ask, why would anyone knowingly choose this option, and the reason is that the tradeoff is a greater stream of income while the annuitant is alive. This can be avoided depending on the kind of policy chosen by the annuitant.

Two types of fixed annuity payout methods can be identified namely life annuities and term certain annuities. A life annuity will pay a pre-determined amount each period until annuitant dies, while term/period certain annuities pay a predetermined amount each period, normally on a monthly basis, until the product expires. Such expiritaion can very well be quite a while before or after the annuitants death.

Several types of life annuities can be identified, differing in insurance components offered to annuitant. What this means is that certain types of the life annuity may adjust current and future payment structures in accordance with the developement of negative events happening to the annuitant, for example death or disability. More importantly, the more insurance components, the longer the duration of payments will be once the annuitization phase commences. It's also a fact that the longer payments last, the smaller the monthly payments will be. The monthly payment amount will also depend on annuitant life expectancy. A shorter life expectancy will mean increased payment due to the fact that more annuity investment funds need to be paid out over a shorter period of time.

Life annuity prices consist of funds invested, as well as premium paid on each individual insurance components, thus more insurance components will mean an increasingly expensive annuity. Different life annuity types have different advantages and disadvantages, depending entirely on the annuities nature. Here is more info on the types of life annuities.

Of all the life annuity payout types available, straight life annuities are considered the most straight forward. The insurance component is based entirely on income provision until death of annuitant. When annuitization phase commences, the annuity pays a fixed per period amount to annuitant until his or her death. Due to the fact that there are no other components to the insurance types, the annuity will be rather cheap. It's also important to note that, straight life annuities make absolutely no payout's to surviving beneficiaries after death of annuitant. If you wish to leave an estate to any surviving beneficiaries, it would be recommended that other investments be kept if they want to purchase a straight life annuity.

Are you suffering from serious health problems? If you are, a substandard health annuity may just be what the investment doctor ordered for you. Substandard health annuities are priced in accordance with annuitant's death in the very near future. Again, a lower life expectancy will result in higher annuity expense due to the fact that there is very low chance for insurance company or financial institution return on the annuitant invested funds. This is also this reason, that annuitants of substandard health annuities only receive a low percentage of actual annuity contribution. However, as a result of the lower life expectancy rate, payouts per period are substantially more when compared to payments made to annuitant with normal life expectancy. In general additional insurance components are not offered in conjunction with these annuity types.

Guaranteed term life annuities offer a range of insurance components, allowing a beneficiary on the annuity, chosen by the annuitant to also benefit. What this means is, should the annuitant die before term cession, the beneficiary will receive any amount of monies not yet paid out. Thus in the event of early death, savings in the annuity will not be forfeited to the insurance company or financial institution. It's important to remember that such an advantage will come at a small additional xost, in the form of lower income.

Another advantage you should be aware of, is that with guaranteed term life annuities in the event of unexpected death, a once off payment will be received by beneficiaries from the insurance company or financial institution. Now, you may ask what is the catch? Well, unfortunately such a payout will be regarded as a boost to beneficiary's normal annual income, which will most certainly lead to an increase in income taxes in year of payment receipt. Such tax implications can possibly lead to the annuitant leaving less to the chosen beneficiary than he or she planned.

If you want your spouse to be well taken care of in case of your death, a joint life with last survivor annuity comes highly recommended. The annuity continues to pay funds to annuitant's spouse after annuitant's death. This means that the payments are transferred no matter the circumstances. In addition these annuities also provide annuitant's with the opportunity to choose additional beneficiaries to receive payments in case of spousal death at a time sooner than expected. It may be stated that the beneficiaries are to receive lower payments.

What are the advantages of joint life with last survivor annuity? The greatest advantage to this type of annuity is the security of persistent income the annuitant's spouse has after annuitant's death. Tax burdens are also a lot lighter due to the fact that payments are periodic instead of lump sum amounts. A major disadvantage to this annuity type is cost. This annuity type is substantially higher as a result of the additional insurance components.

In short fixed annuities are a great way to save for retirement and to ensure regular income once you've retired. Annuities are frequently used as a method of saving as well as tax deferral, while also having the potential to become a hassle to manage to ensure high returns, initial returns can also be consumed by the added cost of insurance features. These contracts can be complicated, and should you not really be keye in on all facets, you may end up paying an arm and a leg and getting little in return. It's recommended that you do proper research if you want to reap the benefits of reduced taxes, stable returns and all round peace of mind.