Introduction to Annuities

Annuities are flexible insurance contracts designed to provide income and help you achieve long-term savings goals. And these are not unused financial vehicles: last year alone, annuity sales topped $200 billion.

Much like a CD is a contract between you and a bank, an annuity is a long-term contract between you and an insurance company. In essence, the same company that insures your home or protects your family may also help you save for retirement.

After making a single lump-sum premium payment, or a series of periodic payments, individuals can then receive regular annuity payments from the insurance company. These payments can be made over a definite period of time, or they can last a lifetime.

Payments to the annuity owner can also be tailored to begin after the contract has been established for a number of years, or they can begin immediately after the first premium payment is made.

Annuity owners even have the choice of receiving regular fixed interest rates (better known as a "fixed" annuity), or having their annuities grow depending on the growth of underlying variable accounts (referred to as a "variable" annuity).

Over time, insurance companies modified and enhanced both types of annuities; however, their basic premise has always remained the same. And because annuities are issued by an insurance company, Congress allows them to grow tax-deferred under current tax laws.

Now for a real in-depth look at annuities, let's begin with a brief history of annuities. You might be surprised to learn how long annuities have been around.

Source: savewealth.com