What is a Fixed or a Fixed-Indexed Annuity?
Fixed Annuities or Fixed-Index Annuities are accumulation products that are designed to provide low-risk returns, with very attractive tax-deferral benefits. The client (usually an individual) pays a life insurance company either a lump-sum premium at the start of the annuity contract, or makes a series of deposits to the annuity contract over time. The accumulated values are then to be paid back to the client in fixed, incremental amounts, over some future time period (predetermined by the insured). Alternatively, the contract can provide flexible liquidity for the client to decide in the future to make partial withdrawals or to withdraw the entire accumulated cash value of the account.
Fixed Annuities are usually funded with fixed rates of interest, guaranteed for fixed periods of time. Fixed-Index Annuities are usually credited with rates of interest that are linked to a variety of bond indexes, stock indexes or other such indexes. Both Fixed Annuities and Fixed-Index Annuities provide deferral of current taxation.
Immediate Annuities vs. Deferred Annuities
An Immediate Annuity is an insurance policy which, in exchange for a sum of money, guarantees that the issuer will make a series of payments. These payments may be either level or increasing periodic payments for a fixed term of years or until the ending of a life or two lives, or even whichever is longer.
A Deferred Annuity is a contract that is chiefly a vehicle for accumulating savings with a view to eventually distribute them either in the manner of an immediate annuity or as a lump-sum payment
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