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ANNUITIES - Types

CHOOSING THE TYPE OF DEFERRED ANNUITY

Lot of variations is found in two basic types of deferred annuities namely fixed and variable. The difference is that fixed annuities assure that your money will accrue at a minimum specified rate of interest. But, the company will pay you a higher rate of interest if its experience of investment is superior to the minimum guarantee where as in variable annuities, the contract owners direct the distribution of their money among several different accounts and the funds that are amassed reflect the experience of those accounts rather than that of the company.

Typical account choices are: common stock, bond, mortgage or money-market accounts. If the value of the accounts increases or decreases amount gets accumulated. More over this kind of annuity is more risky to the contract owner than fixed annuities, but has an option of greater returns. Other types of deferred annuities merge the characteristics of fixed as well as variable annuities. At times annuities are sold as substitute to investment vehicles such as certificates of deposit, money market accounts, mutual funds, etc.

There may be differences too. While purchasing this product, you should bestow with your investment and tax advisor previous to making any decisions. An amount that gets equal to the amount has been mounted up will be paid to your beneficiary if you die during the accumulation phase. There may be surrender charges that gets deducted from the accumulation value. The amount you receive is usually referred to as the cash value. It is unusually a better idea to purchase a deferred annuity unless you are planning to keep it for more than few years.

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