Know Your Annuity Contract, Protect Your Investment

As the saying goes, you work hard for the money. And it is only normal for you to spend and invest your hard earned money wisely. If your chosen form of investment is by getting annuities, then you have to brush up on some legal jargons so that you can fully scrutinize your annuity contract.

An annuity contract is a financial product. Many financial companies offer this sort of investment and you must take your time in examining which annuity policies will best suit your targeted returns, lifestyle and interests in the present and in the future.

There are two major types of annuities: fixed and variable annuity. In a fixed annuity, it means that the financial company will guarantee that your investment will be earning a minimum interest rate while your account is budding. The insurers will also guarantee that the intermittent payments are of fixed amount and would last for a specific timeframe. It can be as long as 15 years or 20 years. In cases of an unspecified period, it might pertain to a lifetime of the investor or the beneficiary.

If you choose to get a variable annuity contract, you have the option to invest your purchase payments to different varieties of investment options. The most common of which are mutual funds. As opposed to fixed annuities, the rate of return on your investment and the amount of the periodic payments that you will receive depends on how well the performance of your investment in the market is. The better the selected choice of investment is, the bigger the compensation will be.

Once you are looking over the annuity contract presented by your financial advisor, you should ask yourself some checking questions to assess it. Are you saving for retirement, or any long-term goal for that matter, or is it more suitable for you to try something for a short-term plan?

Here are some financial terms you might frequently encounter when you are shopping for your annuity:

• Accumulation Phase - the stage where you have to remit the minimum amount and required for the annuity policy you are interested in
• Annual Policy Fee - this is for the maintenance and administration of your account during the accumulation phase
• Beneficiary - the person who is indicated to receive the payment in the unfortunate death of the annuity holder
• Compounding of Gains - this is the interest which is credited to the policy and added to the principal and the corresponding interests gained in earlier policy age
• Surrender Charges - when you withdraw money from your annuity before the date agreed upon the contract, the charge is called surrender charges.

There are more terms which are not usually familiar to those who are in the finance industry and you should look it up or ask your financial manager. Think about this: do you understand and agree with the features, fees, expenses, or probable risk of the terms indicated in your contract? If not, do not be shy about going it over with your financial advisor who will be able to explain to you how specific conditions come about. Remember it is your money that you are investing; it is rational to fully understand what will happen to it.