Oncken Insurance Agency, P.C. Blog
“Annuities produce a stream of income you cannot outlive,” is a sentence insurance companies are prone to throwing around, and it can be real. Receipts from your annuities can match, or even outmatch, your life expectancy. The safety of guaranteed, lifetime income sounds highly enticing, but annuities are some of the most misunderstood products around, having so many types and arrangements.
An annuity is a financial product that pays out to the buyer a continuous stream of payments for a period of time, as indicated in the contract. Take note, annuities are essentially contracts and, as such, can cost steep fees when broken.
There are two phases involved in annuities. The accumulation phase is when the annuity fund accumulates through contributions, before the stated period for payouts begin. When payouts start, the pension is in its annuitization phase.
Fixed vs. Variable Annuity
Insurance institutions invest the funds for fixed annuities in high-quality investments bearing a fixed rate of return. With this, the company carries all the risk, and the insured receives a fixed amount of payments.
However, not all annuities are fixed. The premium payments of variable annuities are invested in different accounts, bearing differing rate of returns. Variable annuities provide higher payments if these accounts do well, or lower payments if these accounts falter.
Under fixed annuities, your payment is sure, albeit in constant amounts. Under variable annuities, you have the potential for more considerable sums, but is more volatile since the markets are not consistent.
Life Insurance vs. Annuities
Life insurance is entered into to deal with the risk of death. Holders pay premiums and are paid a lump sum upon the death of the policyholder.
Annuities deal with the longevity risk. Retirees, especially, would want to still have a steady trickle of income even after their employment, so they enter annuity arrangements to not outlive their assets.
Annuity holders may pay a lump sum or a monthly premium contribution and are then expected to receive regular payments during annuitization.
Annuities Are Not For All
Bill Gates may not need an annuity. He probably won’t run out of money. But if you want the security provided by a stream of income even after your retirement, then an annuity is probably for you. Just make sure you have enough money to cover other expenses.
Annuities may be hard to understand for some, but the benefits they provide are really attractive. Invest in annuities now and enjoy its privileges in the future, for you, and your family.
At Oncken Insurance Agency, we aim to provide comprehensive insurance policies that make your life easier. We want to help you get the insurance that fits your needs. You can get more information about our products and services by calling our agency at (281) 256-8310. Get your free quote today by CLICKING HERE.