What Are The Two Main Types Of Annuity, And How Do The Annuity Rates Compare?

Annuity contracts come in two different main types, immediate annuities and deferred annuities. Each specific type offers benefits in one of two ways, as the name implies. The type you will choose will depends on what your benefit payments need is. A deferred annuity contains two distinct phases: the accumulation phase and the payout phase, while the immediate annuity has only one phase, the payout phase. Each specific type of annuity has advantages and disadvantages, depending on what you are looking for in an annuity contract, but there are ways to get better annuity rates no matter who you finance company or contract provider is. Comparing annuity policies before you purchase a contract will let you get better annuity rates, giving you more financial freedom.

An immediate annuity starts making payments within the twelve month period after the annuity policy starts, so the annuity rates you get will be received immediately following the purchase of the contract. You make the decision on how long the annuity rates and payments last for, whether it is a specific number of years or a lifetime length policy. You discuss the coverage length with the financial agent or insurance broker, and the company will calculate the costs of the individual income payments based on the amount of coverage you purchase and the amount of time you have for the average life expectancy for a person of your age and circumstances. Comparing price quotes and coverage amounts can help you find better annuity rates on your annuity policy.

With a deferred annuity policy there are the two distinct phases, accumulation and payout, and both of these phases have flexibility that is not offered with an immediate annuity. In the accumulation phase, you invest your money and watch it grow, never touching it and letting the interest and earnings build up. Once you are done accumulating the annuity balance, you move to the payout phase of the deferred annuity policy. You decide when the transition happens, based on your individual needs and goals. During the accumulation period your money is not taxed, because these contracts include tax deferred investments. No taxes are owed until you start receiving payments from your annuity policy. Once you decide to payout on your annuity policy, you have the flexibility to decide how you get the money. You can choose one lump sum, monthly or yearly payments, or other options. You can surrender your annuity, which will completely cash out the policy, but your annuity rates will be zero from that point on and the policy is no longer valid. You can also use a process called annuitization, where you convert a deferred annuity into a policy with a series of payments, and it may be possible to find better annuity rates in this process. Remember to check annuity rates before you buy an annuity policy, no matter who the insurance provider or finance company is, to get higher annuity rates and better financial security.