What is an Annuity? An Annuity is an investment contract that provides a guaranteed income stream. In exchange for a lump sum investment, a financial institution makes regular income payments that pay both principal and interest. Payments can be made for the life of one or two individuals or for a fixed term.
There are three types of Annuities:
- A Single Life Annuity provides an income for as long as a person lives
- A Joint and Survivor Annuity covers the lives of two individuals, a primary annuitant and a secondary annuitant (usually a husband and wife). Upon the death of the primary annuitant, the surviving annuitant will continue to receive an income
- A Term Annuity provides guaranteed income for a specified period of time
Annuities can be customized in a variety of ways to meet your financial goals. Options can be added to a Life Annuity Contract but each option that you add increases the cost and reduces the payments. You will get the highest income with a basic annuity that covers only you. Options include:
- Prescribed Annuities: You are able to obtain preferential tax treatment if you are investing in annuities using non-registered funds
- Impaired Annuities: These annuities offer higher income payments in the event that you have serious health issues
- Guaranteed Benefit: This guarantees a specific number of payments. If you pass away before being paid the guaranteed number of payments, your estate will either get the balance of the payments or a lump sum equivalent. If you live beyond the guaranteed number of payments, you will still receive payments for life as you contracted for a Life Annuity Contract
- Indexed Annuity: Your income increases as the cost of living increases
What are the benefits of Annuities?
- They provide a regular, secure income source
- Your money grows tax deferred until you receive payment
- They are easily customized to meet your individual needs
- There are payment options
- Once you have purchased an annuity, you cannot get back your purchase amount or any part of that amount. You will only receive your annuity payments as they are defined by the annuity contract