Is Annuities Insurance a Smart Choice?

Jan 16th, 2011 | By Hot News Reporter | Category: Insurance Today

It is important to opt for sound investment schemes in order to secure your financial assets. Many people end up choosing annuity insurance for this purpose. However, it is important to understand the pros and cons of this type of insurance before you make a decision. The future of your financial assets will solely depend on your choice of investments. An annuity is a contract between you as an investor and the insurance company who promises to help your money grow or pay out a specified amount after a certain period.

To begin with, you must understand that annuities provide guaranteed rates of return on your investment. The insurance company also makes a guarantee of lifetime payments. One major advantage is that your money grows tax deferred. This is beneficial if you are investing non-retirement money. You do not need to pay taxes on dividends, interest, and gains each year until you withdraw the money from the annuity.

On the other hand, you also need to be cautious about certain aspects of annuities. Some contracts have a surrender period that can have your money locked in for a longer period of time. Therefore, it is essential to find out the insurance company’s policies on annuity before you decide to invest. You have a choice of fixed, indexed, and variable annuities. Fixed annuities pay back a fixed rate of return and you have the option to withdraw the money after a specified period. This ensures that your money is free from any fluctuations in the market. Variable annuities on the other hand can affect your principle due to market fluctuations. They are suited for long term investments which grow more when you keep the money for a longer period.

Top insurance companies have a history of stability with limited risks taken by them. For the most part, they survive every type of meltdown or government failure. Fixed annuity holders have never lost a penny due to market losses. Moreover, there is a guaranteed rate of interest provided by the insurance company so your annuity is not going to lose value. The added benefits apart from tax deferrals on earning until withdrawal are probate-free transfers at death, and the option to convert to a guaranteed lifetime income. Insurance companies also allow emergency withdrawals without any penalties.

It would be prudent to treat annuities as a specialty product and study the list of pros and cons before making a decision. If the disadvantages don’t seem to hurt your case adversely, you may opt for variable annuities, or remain safe with an investment in fixed annuities.

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