Most people think of life insurance as the primary way of protecting survivors or heirs. However, some life insurance policies, called annuities, provide an income to the insured person later on in life. Annuities are basically investment vehicles in which you plop down a bunch of money, either as a lump sum or in years of payments, in exchange for a promise from an insurance company that it will pay you a monthly income, usually after a defined period. Of course, that period won’t arrive until well after the company has received enough money from you to make paying you financially viable for them. Two types of annuities are available:
As an investment opportunity, annuities aren’t the greatest options. You can usually do better in other funds and with other accounts. However, with an annuity, you’re investing and being insured at the same time, which may be an attractive benefit for you.
- Fixed annuities:With a fixed annuity, the company pays you a guaranteed rate of growth, based on the amount you have paid in premiums and the terms you have agreed upon beforehand. These payments can be either for a set number of years or until you die.
- Variable annuities: With variable annuities, you can direct how and where the money is invested. The amount you’re paid varies depending on how successful you and the company’s investment funds are. You can instruct the company to invest in any combination of funds that the company offers — stock funds, bond funds, fixed income funds, or other investment funds.
As an investment opportunity, annuities aren’t the greatest options. You can usually do better in other funds and with other accounts. However, with an annuity, you’re investing and being insured at the same time, which may be an attractive benefit for you.
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