What Is a Preferred Fixed Annuity?

Preferred fixed annuities refer to an annuity offered by NY Life. NY Life is a life insurance company headquartered in New York City. NY Life is a mutual life insurance company. This means that the company works for the benefit of its policyholders and is not a publicly traded company.


A preferred fixed annuity is an annuity policy offered through New York Life. The annuity has a minimum deposit requirement of $5,000 for individuals and $10,000 for one-person pension and Keogh plans. No additional premiums are allowed with NY Life's preferred fixed annuity. You may choose from three interest rate periods: three-year, five-year and seven-year.


The annuity invests the premium you pay into income-producing investments. These investments generate interest that is credited to the policy. The interest rate is fixed for the interest-rate period you select at the beginning of the contract. Your annuity account balance grows at the guaranteed rate and will never decrease in value.


The significance of the preferred fixed annuity is that your fixed annuity's rate is locked in for the period you select. This differs from a variable annuity, for which the interest rate fluctuates and is determined by mutual fund investments.


The benefit of a preferred fixed annuity is that you can never lose money in the contract. If you need some of your account balance, you can withdraw up to 10 percent of the account balance. If you have more than $100,000 in your account, you can withdraw the higher of 10 percent or the gain you received for that year. This gives you liquidity not available with some fixed annuities.


Consider how long you want to hold your fixed annuity. The longer the interest-rate period you select, the higher the guaranteed interest rate for the contract. Also, the longer the interest-rate term you select, the longer the surrender charge on the contract. The surrender charge is the penalty the insurance company charges if you attempt to withdraw more than the 10 percent free-withdraw allowance in any given year.