What are Annuities?

Q. What is a Life Insurance Annuity?

A. When you are looking for a way to invest money and diversify their investments, then you may want to consider looking into a life insurance annuity. The stock market is very volatile at the moment and many investors are looking at different ways to protect investments instead of rolling their money into mutual funds.

A life insurance annuity is one way to invest money in something that is safe and will help you out in the long run. A life insurance annuity comes in two different types: fixed and variable annuities.

Q. What are Life Insurance Annuity Benefits?

A. Let’s take a look at what a life insurance annuity is and how it will benefit you.

A life insurance annuity is basically a way to invest your money safely that is offered to you by an insurance company. The premium is usually tax deferred and it is put into an account that accrues interest until the policy reaches maturity.

When the life insurance annuity policy reaches maturity, the insurance company will send you a monthly check upon your retirement. If you die before the life insurance annuity is completely paid out, your beneficiaries will receive the balance of the life insurance annuity.

Life insurance annuity policies are designed to pay the holder of the policy for the rest of their life, a guaranteed income during your retirement.

Q. What is a Fixed Life Insurance Annuity Policy?

A. A fixed life insurance annuity policy is one where you pay a specified amount to the insurance company that they invest. It carries a guaranteed interest rate for a fixed amount of time and the rate is adjusted on a yearly basis after the initial fixed rate timeframe is up. All of the money you put into this life insurance annuity is tax deferred and you will not need to pay taxes on the money you invest until you start to draw the money out of the life insurance annuity.

It also guarantees you a supplemental income when you retire through the time of death. Fixed life insurance annuity policies work like a certificate of deposit with a higher return.

Variable life insurance annuity policies is just like a fixed one except you can control how much interest rate you get on your contributions through a variety of investment options. You can invest it in an aggressive or conservative mutual fund and this allows the policy holder to increase their rate of return which is then reflected in the value that is made out when the life insurance annuity matures.

The problem with variable life insurance annuity policies is that you are gambling with the money you invest. If the mutual fund you put your money into does poorly, you are going to lose money instead of make money which will in turn affect the amount of money that is paid out to you when the life insurance annuity matures.

Q. Is a Fixed Life Insurance Annuity Policy Better than Life Insurance Annuity?

A. Either type of life insurance annuity is a good investment, especially if you are looking for a way to guarantee a supplemental source of income when you retire. You will be assured and have peace of mind that there will always be an income waiting for you when you become a senior and retire and need it.

Granted, the return on life insurance annuity policies is usually lower than the rates of a conventional retirement account, but the additional security they offer make up for that fact.

Both types of life insurance annuity policies offer you a variety of structuring to invest your money. You can make a onetime payment that will accrue interest or you can make monthly premium payments which will allow the value of the life insurance annuity to increase every month. How you decide to invest is completely at your discretion.

Q. What Does This Investment Protect Me From?

A. This type of investment also protects you from the craziness the stock market is experiencing during this global economic crisis. It allows you to diversify your investment portfolios and give you another vehicle in which to build a retirement safety net.