How Annuities Are Beneficial - September 10, 2008 -

Annuity is a type of contract between an individual and the insurance company to look after an individuals savings and his investment. It manages ones pension saving in such a way that once a person retires, there is ample amount of incoming income .It is also known as a pension plan as one of its useful features is to generate money in post retirement period. It is the greatest problem solving option for an old age person for whom there is a constant fear of financial crunch. It is the one of the best saving options, in the sense that it very efficiently manages individuals savings and investment, and is sometimes considered to be even better than Mutual funds, stocks, bank CDs, etc.

In general, the life span of people has increased and this has led to an increase in the post retirement period. People want to lead a peaceful post retirement life without any financial hassle. Annuity comes as a beneficial retirement plan that ensures a guaranteed income for the rest of their life. Retirement savings can be converted into a smooth flow of income through annuity. There is a general scare among people that if they continue to live for longer period, then all their savings will finish off sooner than later and they will face financial crisis. But annuity guarantees a fixed amount throughout life.

A distinguishing characteristic feature of annuity is that it defers tax liability. In this, one is supposed to pay the tax only when the money is withdrawn, in contrast to CDs, where one is supposed to pay tax on the interest even if there is no withdrawal of the money. In annuities the deferred tax remains with the investor as an investment, which gives more money to him, rather than to the state as tax.

Another important benefit, which we get in annuity, is that it offers flexibility. Various investment options are available in annuity and one can choose a suitable plan from among these options. There are certain special features in the plan for the benefit of the annuity owner. The payment can be received immediately after the start of the plan, as in immediate annuity plans or the payment can be deferred to a later date, as in deferred payment annuity. The annuity can be fixed or variable type and the investor can choose to either receive a fixed minimum payment or a variable payment. In some cases, it can also be linked to the performance of an equity index.

The beneficiary need not be the same person as the owner of the annuity plan. A beneficiary receiving periodic payments different from the contract owner can be specified in a plan. The plan can be chosen for the benefit of an individual or for the benefit of two persons, so that if one person dies, the survivor can continue receiving the payment for the rest of his/her life, or till the balance period for which the plan remains in existence.

Remember to always talk with a Financial Professional before making any decisions

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