What is an Annuity?

annuity; these payments will be withdrawn by the annuitant eventually.

Unlike many insurance contracts, all premium payments made into an annuity can be considered payments by the ‘current’ self to the ‘future’ self. For example: today someone purchases an annuity for $20,000; in ten years, the same person can withdrawn money from that same $20,000. Premiums are loans to a future self.

Pros and Cons

There are features of annuities that can be beneficial to the consumer. For instance, a tax-deferred growth on the annuity and, often, a compounding clause. Most annuities have guaranteed rates of return on every dollar invested into the annuity. Choosing to annuitize can also result in lifetime payments.

Different annuity companies have various other benefits that may be beneficial to the collecting party. Each addition to the contract will have specific functions and should be examined carefully.

By Michael Garcia