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Annuities Policies

When you are preparing for the end whether it be for yourself or for a loved one, there are many things which you must consider.

Among these include how you or they will be cared for when health complications arise as well as how the financial burden of such health care or assisted living can be handled so as not to burden those you care about or who survive you.

One of the ways in which you can prepare for this is through things such as annuity policies. These policies can be purchased in advance when you begin to plan for the event of your passing or the passing of your loved one. They can also be purchased when the health of you or your loved ones begins to fade.

Annuity Policies

An annuity policy acts as a type of financial coverage. It serves as a pension for which you pay into years prior to needing to use it. In times of need, having extended annuity policies can truly help you to effectively handle difficult financial times by providing you with a stipend or income when you need it the most.

There are many companies that offer annuity policies and each has particular requirements for purchasing, investing, or the types of policies available. There may be policies contingent upon age that offer lower or higher payment schedules before you use them.

It is important that when you are seeking annuity policies for yourself or your loved ones that you conduct thorough research regarding as many companies in your local area or their local area as possible. Then you can compare the advantages and disadvantages associated with each of the different annuity policies.

This will make it easier for you and your loved ones to find annuity policies most appropriate in your time of need.

What is an Annuity?

An annuity is a type of policy issued by an insurance company designed to accept and grow funds, and upon annuitization, create a stream of income or payments. The money you pay in can be either a lump sum or a number of payments. These contributions generally earn a rate of return, generally tax-deferred.

Types of AnnuitiesThere are two main ways to categorize annuities: immediate vs. deferred annuities and fixed vs. variable annuities. The immediate vs. deferred category has to do with when your income payout begins. The fixed vs. variable category has to do with how your contributions are invested.

Immediate Annuity vs. Deferred Annuity

With an Immediate Annuity, your money provides guaranteed payments to you that begin soon after you make your initial payment. Depending on the tax-qualified or non-tax-qualified status of your annuity, a portion or the entire payment can be included in your taxable income. The owner can elect to receive guaranteed payments for life, or elect payments to be made over a specified length of time (period certain).

With a deferred annuity, your income payments are usually put off for a period of time allowing the money you've contributed to earn interest generally tax-deferred. You choose when you want to start receiving income payments — typically, upon retirement.

Fixed Annuity vs. Variable Annuity

With a Fixed Annuity, the insurance company places money in high quality fixed-rate investments such as bonds, where the insurance company will earn a fixed interest rate for a certain period of time. For most fixed annuities, the insurance company guarantees a minimum interest rate that you will earn, often for a specified period of time. With a Fixed Annuity, the insurance company is taking the investment risk.

With a Variable Annuity, money is placed in market-based investments. This may include stocks, bonds, mutual funds, or money markets. You may have the option to move the money around among the different investments. In addition, the rate of return can vary based on the performance of the investments. With a Variable Annuity, the risk is taken by the annuitant, rather than by the insurance company.

Tax Advantages

Deferred annuities can also be a good way to help increase your retirement savings. The tax-deferral and compounding of interest provided by an annuity can help it to grow larger than an equal amount placed in a taxable account. Gains will be taxed as ordinary income once the money is withdrawn. Annuities can also be used to fund traditional IRAs, Roth IRAs, and Simplified Employee Pension Plans. When an annuity is used to fund a tax-qualified retirement plan or IRA, the tax deferral is provided by the retirement plan or IRA and not the annuity. You should contact your attorney or tax adviser for more complete information.