Annuities Insurance
Definition
There are several ways to categorize annuities, and any one annuity may fit
into several categories. Immediate Annuities: With an immediate
annuity, the annuant pays a single premium and immediately starts receiving
payments at the end of each payment period, which is usually monthly or
annually. Deferred Annuities: With a deferred annuity, the
annuant pays one or more premiums over what is often called the accumulation
period. The premiums paid and the interest credited to the premiums goes into a
fund called an accumulation fund. There may be a minimum guaranteed interest
rate at which the money will accumulate during the accumulation period.
Fixed Annuities: A fixed annuity provides fixed-dollar income payments
backed by the guarantees in the contract. The annuant cannot lose the investment
once the income payments begin. The amount of those payments will not change.
With fixed annuities, the company bears the investment risk. Variable
Annuities: Variable annuity investments are securities, and fluctuate
with economic conditions. The value of a variable annuity depends upon the value
of the underlying investment portfolios associated with the annuity. The
annuitant bears the investment risk for the value of the security. The value of
the annuity will increase or decrease with the investment performance of the
security.