Annuities Explained

Annuities are term deposits with insurance companies. They are similar to certificates of deposits at the bank (note: bank deposits are FDIC insured while the issuing insurance company guarantees annuities). There are two types of annuities: fixed and variable. Fixed Annuities Explained Fixed annuities have these general features: • Your principal is guaranteed by the claims-paying ability of the insurance company; it will never decline. • The insurance company adds interest to your deposit each year. • The annuity is for a specific term that you select. Generally, the longer the term, the higher the interest. • All interest is tax deferred (you do not report it on your tax return) until withdrawn. • You may withdraw 10% of your balance annually. • If you withdraw more than 10% during the term, you will pay withdrawal penalties (called surrender charges). Most fixed annuities offer an initial one-year rate and then the rate changes each year. A few companies offer a locked-in rate for the entire period (called multi-year gaurantee annuities). Another type of annuity is called a variable annuity. Variable Annuities Explained With this type of annuity, rather than receiving interest from the insurance company, your money is invested in [...]

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