Understanding annuities is not impossible. These investment accounts are sold by insurance companies and are utilized as retirement accounts, often times by individuals who have already contributed the maximum amount toward their other retirement accounts.
Understanding Annuities Details
Are annuities an investment product or an insurance product? The answer is that annuities are a little bit of both. Annuities are investments because they provide an eventual return for the money originally invested. Annuities are also insurance products because they are sold by insurance companies and can also act as life insurance policies.
Purchasing annuities is placing investment dollars into insurance accounts, which can potentially provide significant tax advantages for some people.
Fixed and Variable
Annuities can have fixed rates of return or variable rates of return.
- A fixed rate annuity provides a certain interest rate for a predetermined period of time, after which the interest rate becomes variable.
- A variable annuity does not feature a period with a fixed interest rate at all.
While variable annuities obviously feature higher risk than fixed rate annuities, there is also a higher potential for earnings with variable annuities.
Are annuities right for you? The answer depends largely on your financial situation. Consider both your investment and insurance needs when deciding if you should add annuities to your total financial portfolio.
Research your annuities options carefully. LoveToKnow offers a variety of informative articles to help you with understanding annuities, whether it's trying to learn more about a specific annuity product or annuities in general. The information you find here will demystify the concept of annuities and will better prepare you to decide whether or not this particular insurance product is right for you.