Life Insurance Annuity

The Truth About Life Insurance Annuities

Life insurance annuities are an increasingly popular investment choice for many people looking to diversify their investments. With the volatile condition of the stock market today, and with most mutual funds tied to the performance of the stock market, investors are looking at different ways to protect their investment. In some cases the answer may be a life insurance annuity. There are two types of life insurance annuities. They are referred to as fixed annuities and variable annuities. Before going in to the specifics of annuities it is important to first know what an annuity is and how it can benefit you.

A life insurance annuity is an investment vehicle offered by an insurance company. Most commonly an annuity is used to put tax deferred money in an account that accrues interest that you use until the policy reaches maturity. At that time, the insurance company will start sending you money every month after your retirement. With a life insurance annuity, after your death your beneficiaries receive the left over balance. The best thing about an annuity is that it pays the owner for the rest of their lives. It guarantees an income in your retirement.

The most common life insurance annuity is called a fixed annuity. A fixed annuity is an investment that where you pay an agreed upon amount of money to an insurance company. The company then offers you a guaranteed interest rate for a fixed amount of time. This interest rate is then adjusted on a yearly basis. A fixed rate insurance annuity has two advantages, first your money is contributed to the insurance annuity on a tax deferred basis, this means that you don't have to pay taxes on the money until the time you start drawing money from the annuity.

A fixed annuity offers a guarantee that seniors will have a supplemental income after their retirement until the time of your death. A fixed annuity works like a certificate of deposit, but your rate of return is usually somewhat higher.

A variable life insurance annuity is an investment in an annuity account where you have the ability to control your contributions interest rate with a variety of investment options.

You can have your money invested in an aggressive mutual fund or a conservative investment mutual fund. A variable life insurance annuity offers the owner the chance to increase their rate of return, thus increasing the value of their life insurance annuity which will then pay you after your retirement a bigger monthly payment. However, with this added opportunity for growth comes the risk of your investment losing money or growing at a slower rate if the market does not perform well, and if the investment option is put in a mutual fund that does not perform well or performs worse than expected you can end up losing money and having a lower pay out when you start taking monthly pay outs.

Fixed or variable life insurance annuities are a good investment option for many people who are looking for a guaranteed source of income to supplement their retirement accounts. This offers the owner the peace of mind to know that they will always have an income. While life insurance annuities usually you usually have a lower return on your investment than a conventional retirement account, they also offer greater security.

With both fixed life insurance annuities and variable life insurance annuities there are many options available to the owner of the policy on how the annuity is structured. Like a CD you can make a onetime payment and let the money earn interest. Another option is to make monthly payments on the principal, gradually increasing the value of your life insurance annuity.
For many investors the life insurance annuity offers a hedge against the volatility of the stock market. For those wishing to diversify their investment portfolios a life insurance annuity offers another vehicle to grow their investment nest egg while at the same time giving you a guaranteed safety net for the rest of your life.

As with all investments, it is wise to talk to an investment advisor or expert to determine if a life insurance is a good investment for you. An investment advisor can also give you a good idea of which kind of annuity is best for you.