Annuities Are Sold By Insurance Companies
Today's financial marketplace offers a broad array of investment products. Choosing the most suitable product - in light of your age, other investments, and current economic situation - is not an easy decision. Adding to this difficulty is the money to be made, in the form of commissions and other compensation, by those selling investment products. Unfortunately, sometimes this financial incentive may outweigh concerns about whether the product being sold is appropriate for your situation.
At worst, this financial incentive can lead to less-than-full disclosure or outright misrepresentations about the terms and conditions applicable to the product being sold. Even if there has been full disclosure, failing to completely understand an investment product before purchasing it can result in you paying unnecessary taxes, early withdrawal penalties, administrative fees, and other expenses that could have been avoided.
One investment product of special concern, particularly for senior citizens and those approaching the age of retirement, is the annuity. Generally, annuities are sold by insurance companies and constitute an agreement where you make a lump-sum payment or series of payments in return for the insurer's agreement to make periodic payments to you beginning either immediately or at some future date. These periodic payments may last for a definite period (for example, 20 years) or an indefinite period, such as your lifetime or the lifetime of you and your spouse.
Fixed And Variable Annuities
Annuities come in two basic forms - fixed and variable. A fixed annuity guarantees payment by the insurance company of a minimum rate of interest and periodic payments in a definite amount per dollar invested in your annuity account.
In contrast, a variable annuity allows you to allocate your purchase payments among a range of different investment options or "subaccounts" within the annuity, usually mutual funds.
With a variable annuity, the rate of return on the amounts you invest and the amount of the periodic payments that you receive will vary depending upon the performance of your investment selections within the annuity. There is, therefore, no guarantee that the money you invest in a variable annuity will earn any return, and there is a risk that your investment will decline in value.
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Deferred Annuity
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