YOU ASK:

What different types of annuities are there?

WE ANSWER:

There are various kinds of annuities you can choose from. Here is a list of the most popular options:

  • Single Payment Annuity. As the name suggests, you pay one lump sum, wait for it to mature and then you get the annuity payments that have already earned their interest income.
  • Flexible Payment Annuity. With this annuity you pay regularly until you achieve the purchase price of the annuity.

These annuities can be further classified:

  • Fixed annuity. This provides a guaranteed rate of return for a specific period. The regular payments given when the policy matures are also fixed.
  • Variable annuity. This provides you with rates of return depending on how well the annuity's investments performed. Thus, the regular payments given when the policy matures will also be dependent on the performance of the investments. You have the option to choose the kinds of investments the annuity makes. The money in this annuity is placed on sub accounts and may be placed in different kinds of investments - bond funds to the more aggressive growth funds.
  • Equity-indexed annuity. This annuity is placed in a fixed account. Interest earnings are based on how well or how poorly a particularly stock index is doing. Examples of a stock index that may be used are the Dow Jones Industrial Average, the Standard & Poor's 500 Index or the NASDAQ Composite Index. You are assured that your principal is protected.

Annuities can be further classified by how long payments are made:

  • Life annuity. This will give you a regular income over your entire income. This can be bought as a single annuity and will be calculated based on either your own life, or both you and your spouse's lives. For the former, the contract will terminate when the annuitant dies. At that point, no more payments are made for the beneficiaries. For the latter, the contract ends at the last living spouse's death. In the event that the annuitant dies during the accumulation period, the proceeds of the annuity will be paid to the beneficiary or to the estate.
  • Term certain annuity. This will give you a regular income for a specified length of time. An example would be an annuity that will pay for twenty years. After the 20 years, the annuity contract is considered terminated. If the annuitant dies before the payment term is ended, the payments will go to the beneficiaries.
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