ANNUITY FACTS

ANNUITY FACTS

An annuity is a “savings plan with an insurance company very similar to a CD.” There are 2 general categories of annuity contracts. In either plan a lump sum premium is initially paid into the account and in most cases can be added to during the first twelve months of the contract.

Variable Annuities and Fixed Annuities

Variable Annuities.
Variable annuities are plans where the Annuity premium can be invested in stocks , mutually funds, or other securities. Variable annuities therefore have risk and can occur substantial losses. We will limit the discussion to “fixed” annuities.


Fixed Annuities
Fixed Annuities generate either an interest based return or a return based on an index such as the S & P 500. Although the index can vary up or down the contract terms almost always are such that the value of the account can only go up and never down. That is if the index goes up during the stipulated period (i.e. the amount can be calculated on a month to month basis, either averaged or point to point or on an annual basis). The insurance company is able to do this by “capping “ the return at an amount somewhat less than the actual return . Thus cushioning any losses during down years.


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