Annuity: Securing tomorrow with today's investment

An annuity is an agreement which you will pay a lump-sum or pay in regular installments to an insurance company, who will in turn make periodic payments to you at a future date you will both agree on. In short, it is like saving your money with an insurer and you can get it back at an arranged time immediately or in the future.

When you buy an annuity, you will get it back like a regular income but with a tax-deferred earning, and some insurance companies may even offer a death benefit. This is advantageous because in the event of your death, your beneficiary can receive a guaranteed minimum amount, usually amounting to the equivalent of the total payments you made.

Annuities are classified into two types, the fixed annuity and the variable annuity. If you are going to buy a fixed annuity, you enter into an agreement with the insurance company that your payments will earn interest at a minimum rate while your account is increasing. With fixed annuity, your insurance company also guarantees that the periodic payments you will be receiving lasts for a set period as what you have agreed on, like a term of 20 years, your lifetime or the lifetime of your beneficiary.

If you choose to buy a variable annuity, it is different from the fixed annuity because in variable annuity, you can opt to place your payments in investment. You can choose from several options to invest in like typical mutual funds. This means that the rate of return on the payments you made and the amount of the periodic payments the insurance company will be paying out to you later will not be the same. It will differ and will rely on how the investment option you have chosen performed. If you go for variable annuity, you can be assured that these are annuities regulated by the Securities and Exchange Commission. The fixed annuity, on the other hand is not regulated by the SEC.

Before you make a choice of what annuity is right for you, take time to read what you can about the different annuities, what they offer, what are the fees, costs and charges and any other relevant information. You could get brochures from the different insurance companies or you could also check the internet. A few clicks on your computer could lead you to several websites and other resources which contain more information about the different types of annuity and everything you need to know about it. Remember, it's hard-earned money you will be investing for your future, so take time to know what is expected of you and what you can expect before you make a decision.