17 Jul The 4 Main Types of Annuities Everyone Should Know About
Despite the bad rap they get in many financial circles, annuities are a surprisingly simple financial device designed to help you make the most of your money. When you obtain an annuity — whether it’s a traditional annuity or a structured settlement annuity — you essentially sign a contract with your insurer that allows you to secure future payments by paying a premium now.
However, not all annuities are beneficial to all people; choosing the right annuity for your unique financial needs is key when it comes to doing what’s best for your future.
Does even the thought of the words “structured settlement annuity benefits” leave you feeling frightened? Don’t be. Annuities can be a great way to protect your finances in the long run and guarantee financial stability throughout your retirement years. Here’s a quick, simple guide to the four most common types of annuities to help get you started:
The simplest type of annuity by far, an immediate annuity is established when you make a one-time, lump sum payment to an insurer with the promise that you will receive regular payments from your insurer that begin immediately. If you have a large sum of money that you want to spread out over the years, this can be a great way to stay on a budget.
Deferred income annuities
Deferred income annuities are much like immediate annuities, only the payments you receive begin at a later date. Most people choose this option as a way to have a guaranteed, steady source of income during retirement.
Fixed annuities are annuities whose value increases steadily over time as determined by your contract. These annuities are typically deferred; however, you can often opt to make them immediate if you wish. Interest rates on fixed annuities tend to be higher than on other investments, and it can be complicated if you find that you want to sell your structured settlement annuity for cash later on. If you sell your annuity for a lump sum within the first seven years of your contract, you could be facing penalties as high as 6 to 7%.
Variable annuities’ outcomes are based on those of an outside market, such as the stock market or bond market. For example, if the stock market does well, the value of your variable annuity will rise. Many people are attracted to these annuities because of the investment opportunities they allow. However, annual fees can add up. While most variable annuity fees hover around 2%, some mutual fund companies can charge fees as high as 3%. As a result, read the fine print before agreeing to a variable annuity.
Have any other questions or comments for us about annuity settlements or selling your annuity? Feel free to start the conversation by leaving a comment below.