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There are many types of Annuities
An Annuity is a purchased insurance policy that pays a fixed amount of benefits. Most annuities are “immediate” annuities that pay fixed monthly amounts for the life of the person who is entitled to those benefits, or for a determined period of time, e.g. 15 years. In a “simple life annuity” when the person receiving the annuity dies the benefits completely stop; there is no final lump sum payment and no provision to keep paying benefits to a spouse or other survivor. A “continuous annuity” pays monthly installments for the life of the retired person and also provides a smaller continuing annuity payment for the person's spouse or named beneficiary after the person's death. These annuity contracts are usually with insurance companies and often have high upfront commissions and severe penalties if money is withdrawn earlier than the contract allows.
The Two Most Common Types of Annuities
Creating the Annuity – The Premium
Getting Money Out of an Annuity - Annuitization Options
Annuitization Options are the choices an annuity holder has on how to receive the annuity value other than in a lump sum. The Annuity Owner chooses how he or she wants the payments to be made. Common annuitization options are:
Rate of Payout and Crediting Methods
The amount the Beneficiary receives upon the death of the annuitant. The important thing to note here is that some annuities reduce the Death Benefit by the Surrender Charge while others do not.
A surrender charge is a penalty for making an early withdrawal. Surrender charges vary greatly from annuity to annuity. Generally speaking, the higher the surrender charge and the longer the surrender period, the higher the commission is to the agent. High surrender charges tend to be a common denominator in abusive annuity sales to seniors.
Take your time and get second opinions
Never rush into a decision to purchase an annuity. Have the agent give you a written statement why he or she thinks the particular annuity is suitable for your needs.
Page Last Modified: March 6, 2020