Knowing the Best of Your Annuity Options

If you are scouting for the best category of annuities, take note that there are five main annuity options which can be presented to you by your financial manager. First is the fixed or variable annuity, deferred or immediate, fixed period or fixed amount (lifetime) single premium or flexible premium, and qualified or non-qualified.

In fixed annuity options, the principal and the minimum interest rate are guaranteed by the financial company from whom you have gotten your annuity policy from. You should take into consideration the background of financial institution. Why? It is because as long as their company is still financially sound, your investment will continue to grow and resist devaluation. Under such category, there are two other types: equity indexed annuity (EIA) and market value adjusted annuity (MVAA).

In deferred annuity options, you will receive investment changes disbursement and premium payouts at a much later period. Brace yourself as it can be a very long time which can take decades. Do set your expectations by inquiring the maturity period of your investment before signing the contract.

On the other hand, an immediate annuity is intended to issue payout after the annuity is bought, hence the term 'immediate'. The immediacy and frequency depend on the arrangement agreed on. For example, if you have chosen monthly repayments, you will receive it one month thereafter the immediate annuity is bought.

In fixed period annuity options will pay an income for a precise period of time; while a lifetime annuity is dependent on the lifespan of the person. So definitely, the longer you take care of yourself, the longer you will be able to reap the fruits of your annuities. For the lifetime annuity option, there are subtypes—two-life annuity and 'pure' lifetime annuity. The former is dependent on lifespan of two annuitants, which means that if the first annuitant dies, the annuity income will still continue until the second annuitant is deceased. In pure-lifetime annuities, the income will stop once the annuitant dies.

Single premiums and flexible premium annuities are similar to deferred and immediate annuities; except that a single premium annuity has the options to either have deferred or immediate payouts. This means that there can be a single premium deferred annuity (one-time-payment of long term investments) and single premium immediate annuity (one-time-payment short term investment). Flexible premiums only have deferred annuities. Before any income can be withdrawn, investment growth combined with significant period of payment should have taken place.

Last but definitely not the least, a qualified annuity means that the money remitted to the annuity contract (called contributions or premiums) will not be included in your taxable income in the year it was paid in. For non-qualified annuities, it refers to a 'tax friendly' retirement plan. Unless the money is withdrawn, the annuity will remain non taxable.