Annuities refer to a financial scheme that is usually offered on sell by financial institutions. These schemes are designed in a way that requires the financial organization accept a certain amount of money from an individual and let it grow within a specific duration of time. On completion of the specific term, the individual is paid a bulk amount of money from the company as per the rules and norms. This scheme is usually offered to individuals to help them regulate a steady cash flow after retirement. Annuities usually are purchased for a better and secured future after retirement.
In simple words, an annuity is an investment that is made through a certain sum of money either together or through installments for a specific number of years. This investment in return offers you a certain amount of money every month, every half-year, or every year. This deal of repayment of the sum invested can be made either for life or for specific years. In general, annuities are classified in accordance to payment dates, which can be classified to yearly, quarterly, monthly, or weekly. Some of the examples of annuities include savings account deposits, monthly insurance payments, or monthly home mortgage payments.
Types of Annuities
An annuity is broadly categorized into four types, which is often classified as per the mode of payments. Here is a detailed look at the annuity types –
- Ordinary Annuity – This type of annuity refers to an investment in which you receive the payments at the end of a particular period like, year or month.
- Fixed annuities – this investment scheme refers to annuities that are determined by fixed payments. This particular scheme is used for investments having low risks like government securities. This annuity though refers to a fixed rate is not controlled by the Securities and Exchange Commission.
- Variable annuities – These are controlled by the Securities and Exchange Commission and let you invest a particular sum in markets.
- Equity-indexed annuities – this particular type generally refers to a collective sum of payment made to an insurance company.
Benefits of Annuity
Annuity investment guarantees a secured income throughout the life of an individual. In addition to receiving the payments after the completion of annuity term, he receives many other benefits. The benefits of tax are also added in an annuity scheme.