Overview
There are several ways to categorize annuities, and any one annuity may fit into several categories.
- Immediate Annuities:With an immediate annuity, the annuitant pays a single premium and immediately starts receiving payments at the end of each payment period, which is usually monthly or annually.
- Deferred Annuities:With a deferred annuity, the annuitant pays one or more premiums over what is often called the accumulation period. The premiums paid and the interest credited to the premiums goes into a fund called an accumulation fund. There may be a minimum guaranteed interest rate at which the money will accumulate during the accumulation period.
- Fixed Annuities:A fixed annuity provides fixed-dollar income payments backed by the guarantees in the contract. The annuitant cannot lose the investment once the income payments begin. The amount of those payments will not change. With fixed annuities, the company bears the investment risk.
- Variable Annuities:Variable annuity investments are securities, and fluctuate with economic conditions. The value of a variable annuity depends upon the value of the underlying investment portfolios associated with the annuity. The annuitant bears the investment risk for the value of the security. The value of the annuity will increase or decrease with the investment performance of the security.
