What Is an Annuity Policy?

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You can purchase an annuity policy from an insurance company for a specific length of time, such as a 10- or 20-year period. An annuity is essentially an investment that grows in value at either a fixed or variable rate.

Types

If you purchase a fixed annuity, you will earn a pre-specified minimum amount of interest on your investment. If you purchase a variable annuity, you control how you want the annuity amount invested, and your rate of return will depend on how well your investments perform.

Funding

When buying an annuity, you can choose to make a one-time lump sum payment towards the annuity amount. You can also spread out partial payments towards the annuity amount over an extended period.

 

Benefits

Annuities provide you with a tax deferral on any earnings your investments make. Certain annuity policies also ensure that your death beneficiary will receive a guaranteed amount of your annuity.

 

Considerations

The U.S. Securities and Exchange Commission (SEC) regulates variable annuities. However, the SEC does not have any regulating power over fixed annuity policies.

 

References

About the Author

Lolo Parker is a freelance writer specializing in pet care, beauty products, accounting, telecommunications, religion and gardening. Parker holds a Bachelor of Metaphysical Science from the University of Metaphysical Sciences and is pursuing her master's degree in the same field at U.M.S.

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