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Annuity Basics

What is an Annuity?
An annuity is a contract in which an individual agrees to pay premiums to an insurance company and receives, in exchange, a regular stream of income payments from the issuer.

The Main Benefits of Annuity Investing:
Tax-Deferral: All interest, dividends and capital gains accumulate tax-deferred. Because you do not pay taxes on annuity assets until you access your contract, you may be able to accumulate more than a taxable investment earning the same rate of return.

A Guaranteed Death Benefit: Generally, annuities also offer a death benefit, allowing you to pass the annuity proceeds directly to a named beneficiary. All guarantees are based on the claims paying ability of the insurance carrier, and do not apply to the investment performance or safety of the investment options.

Lifetime Income: You can choose from a variety of annuity payout options, including payouts guaranteed for the duration of your life.

How an Annuity Works
The life of your annuity can be broken down into two phases: accumulation and annuitization. During the Accumulation Phase, any earnings on the contract accumulate tax-deferred. During the Annuitization Phase, you choose an annuity payout option and begin receiving income.

Types of Annuities
Depending upon investment goals and need for income, investors can choose an immediate annuity or deferred annuity.

Immediate Annuities: This type of annuity is designed to make payments to you shortly after your premium payment is made.

Deferred Annuities: A deferred annuity allows you to delay the start of your income payments until a later date of your choice.