Annuities: What is an Annuity?
By Jorge Hiram Garcia, Your Insurance Advisor | May 17, 2010
An annuity is an investment vehicle that is also an insurance product available from insurance carriers or companies. An annuity helps consumers protect themselves against living too long. In effect, it works as the opposite of a life insurance policy which protects consumers from living too little. An annuity guarantees the annuity buyer or purchaser a fixed amount of income for as long as they live.
When a consumer purchases an annuity from an insurance company, the consumer is given certain assurances or promises by the insurance company. It is very important for the consumer, or annuity buyer, to take the financial strength of the insurance company in mind when purchasing an annuity because the assurance or promise made by the insurance company is totally dependent on the insurance company’s ability to pay. Always make sure the company you are considering purchasing an annuity is financially strong.
Another important factor to consider is the type of annuity that is chosen. There are different types of annuities and some are more effective than others. Some types of annuities are actually very harmful to consumers and should be avoided whenever possible. We’ll take a look at some of these bad annuities in a later article.
What to look for in an annuity:
1) How are the funds (your money) invested? Will your interest rate be fixed or variable?
2) When will income be taken? Will it be an immediate or deferred period?
3) Can you add additional funds to your annuity? Is it single premium or flexible premium?
Annuities are issued by insurance carriers, or companies. Annuity products are marketed through a variety of methods including insurance agents and agencies, banks and credit unions, brokerage firms, financial planners and investment advisers. As with any other financial product or service, consumers should take care to select an advisor that has their best interest in mind, and are not just interested in generating a commission for themselves.
We at Your Insurance Advisor will be taking a closer look at annuities and annuity products in the coming weeks so stay tuned to learn more about annuities and annuity products and the things to look for in this type of insurance investment product.
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