Question

4. List the three (3) characteristics of an annuity 291911 olamiz avbe domovni 'Ansa Inge

Answer 1

Annuities provide a secure guaranteed income, for your lifetime or for a fixed term of your choice.

characeristics of annuity can be stated as below:

INSURANCE PRODUCT:

Annuities are sold by life insurance companies and considered to be an insurance product. Any guarantees or benefits provided by the annuity contract are the obligations of the insurance company and not backed by any government insurance. Although they are sold by life insurance companies, they do not have a life insurance benefit. The most a beneficiary will receive is the deposits to the contract plus any earnings that have accumulated. The safety of the annuity is based on the safety and stability of the issuing insurance company.

TAX DEFERRAL:

Deferred annuities earn interest until the annuity owner, is ready to receive retirement income from the contract. The earnings received by the annuity grow tax deferred until withdrawals are made. Fixed annuities earn a rate of interest determined by the insurance company. The rate is usually adjusted once a year by the insurance company to reflect current interest rates. Variable annuities have separate accounts that hold stocks and bonds like a mutual fund. The growth of these accounts is also tax deferred.

WITHDRAWAL PENALTIES:

Annuities have no upfront sales charges or commission. The full deposit to an annuity goes to work earning money. Annuities do have withdrawal fees that the insurance company will keep if money is withdrawn during a certain period, usually five to seven years after the annuity is purchased. Withdrawal fees are in addition to any taxes or tax penalties that may be due when money is taken out of an annuity prematurely.

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FIXED, COMPETITIVE INTEREST RATES:

Fixed annuities pay a competitive interest rate when compared with other income products like CDs, bonds and bond mutual funds. Annuities are available with the interest rate guaranteed from one to several years. After the rate guarantee period ends, the insurance company will pay interest on an annuity based on the company's own investment results. Annuities have surrender fees for the first several years. A good annuity will have the surrender fee period match the interest rate guarantee period. If the rate paid after the guarantee period is not competitive, the annuity can be exchanged for another fixed annuity from a different insurance company.

TAX PENALTIES:

Annuities are retirement savings products, and there are tax penalties if the earnings are withdrawn before the annuitant reaches age 59 and a half. Early withdrawals are subject to regular income tax on the earnings plus a 10 percent tax penalty. Withdrawals after age 59 and a half are subject to regular income tax rates

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