Annuity can also be referred to as an insurance because similar to an insurance company, you pay premiums and then when the money has gained interest rate. It actually acts like an investment plan. An annuity will divided into two stages and that is the accumulation and the repayment stages. The initial stage is the accumulation which requires the party to pay the insurance company premiums which it invests somewhere else and then after a certain period we have the repayment period whereby the insurance company will pay up the money and on top of that add some interest.
When repaying the amount, the investor will be given two options. Whether to collect the whole amount of money or to collect it in pieces also known as structured settlement. The structured payment will most probably be spread over a long period of time where you will get money every month for example.
For annuity, there are several options which people may choose to use for investment purposes. Here are some of the options.
No Refund Forever Annuity Option
The title itself is self-explanatory. In this option, you will invest money to the insurance company and of course the money will gain interest over time. However you as the investor will never get to enjoy the returns of your appreciated money. The refund will occur after you die. This annuity settlement options can be compared to life insurance where your dependents inherit the money.
A Joint Annuity Option
This second option is most preferably used by married couples or partners. The two people will go and open an investment account and then both of them will contribute equally to the premiums required by the insurance company. Depending on the agreed period of time, the money will mature and have interest and both of the investors will get their returns cut in half for each. If one of them is dead then every benefit will go to the next.
A Temporary Life Annuity Option
In this third option, the person will invest and the money will gain interest. The person however will not have to wait until their death so that they can get their refunds. This is a very suitable and simple plan.
Refund during Life Annuity
For this option, the investor will invest the money as required by the insurance company. The money will then gain interest from the company investments. When it comes to repayment time, the person who invested will receive at least half of the amount and then for the remaining period of time, the heir will receive the rest of the money.
Having an annuity plan makes sure you have returns later in life which come as annual settlements. This is a very favorable way of gaining profit although it will take long and the appreciation may not be as much.