Types of Annuities
|
| There are two basic types of annuity contracts. The kind of
annuity you choose to buy determines when benefit payments will begin. |
| Immediate annuities are generally purchased by people
of retirement age. Such plans provide income payments at once or soon after
purchase. They are usually purchased with a lump sum payment. |
| Deferred annuities are plans under which you arrange
to have income payments start at some future date. Interest builds up on the
money contributed. Such plans are often used by younger people to save money
for retirement. These plans have become popular in good part because of the
tax-deferred buildup during the accumulation period, the time during which you
pay money into the annuity contract. (See "How About
Taxes?") |
| If you buy a deferred annuity with a lump sum, it is known as
a "single-premium deferred annuity." You can, however, pay for your deferred
annuity over a period of years. Typically, this type of contract allows
flexibility in premium payments. Except for the first year premiums may vary
from year to year, with no requirement that any specified amount be paid in any
given year. Such a contract, called a "flexible premium retirement annuity,"
can be used as an Individual Retirement Account. |
| Under either form of deferred annuity, if you die before the
annuity payments begin, the accumulated value of your contract is paid to your
designated beneficiary. |
| You can also convert the cash value of your life insurance
policy to an annuity. For example, if you are over 65 and your children are out
of school and are financially self-sufficient, you may now feel you no longer
need all of your life insurance coverage. Your life insurance policy probably
contains an option allowing you to convert its cash value to a life time
income. |
