Part 1 – Annuities – What are they all about?

What is an Annuity?
Annuities are contracts issued to policyholders by insurance companies that provide for accumulation of interest on premiums, and also for the distribution of the values over a period of time. The word annuity literally means “annual payments” and when you buy an annuity, the insurance company agrees to pay you an income for a specified period of time. Whether these income payments start right away, or at some future date, determines what type of annuity you have: Deferred or Immediate. Dollars put into annuities are called premiums. As your premiums earn interest within the annuity contract, your funds are growing on a tax-deferred basis. This is the key attribute of an annuity. Your dollars grow tax-deferred until a later time when you start to use the funds. They are used most often for long-term savings purposes, such as for retirement. Fixed deferred annuities generally have a guaranteed “floor” interest rate for the life of the contract, plus a currently declared rate which is usually higher. The insurance company also offers several options for clients to access their funds, either through partial withdrawals, or through one of a multitude of settlement options.