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How Are Annuity Rates Calculated?

Have you ever invested in an annuity, or are considering taking one up? Well, same as when dealing with any kind of legally binding contract, for our own protection and information, we want to make sure that we’ve got all the facts. Ideally, the insurance company that you choose to deal with should be very capable and willing to supply you, its client, with a comprehensive explanation of all the necessary information. At the same rate, you as a client (or prospective client) wants to make sure that you know what types of questions you should ask so that all the fundamental basses are covered, leaving no room for unwelcomed surprises. Do you know what information you should gather about the annuity you’re about to sign? Worst-case scenario is that un-informed; you’ve already signed the contract between you and the insurance company…oops! Fortunately, it is never too late to get clued-up, and for you’re benefit, to lessen the headache and confusion, I’ve derived a list of lingo that you can utilize during your meeting with the insurance company. In return, they should be able to break down very clearly for you how their product deals with each of these crucial aspects: annuity rates, annuity payments, and annuities tax.

Annuity Payments – All of the Information

When you sign an annuity contract, you are basically agreeing to pay a large sum of money all at once, or alternately, in smaller installments to ensure a life insurance policy. Of course, the annuity payments vary depending on the plan you choose, so make sure that you select the right option for your personal financial situation and the type or types of payments that you can afford to make. In return, your insurer is agreeing to make periodic payments to you, beginning right away or at a later date depending on the fine print of your contract. You might be wondering, “What if I pass away, what happens to my money then?” We all want to make sure that after we’re gone, our money goes to our loved ones or the person/people we will it to. Consequently, in the case of a fatal accident or death, your annuity guarantees that your beneficiary will receive a minimum amount comparable to the amount paid during the initial annuity payments.

Annuity Rates – What do you need to know?

An essential detail for understanding your annuity contract is as simple as knowing that there are two types of annuities. One is called a ‘fixed annuity’ that you pay for in cash, whereas the other is a ‘variable annuity’ where you invest your purchase payments in the investment of your choice (mutual funds are a popular option). Determining which type annuity contract to sign greatly relies on what kind of rates you’ll get in return, so what you want to know, is how annuity rates are calculated. The two aforementioned types offer different annuity rates from one another. The fixed annuity guaranties a fixed minimum rate of interest, whereas the rate earned by the variable annuity depends entirely on how your investment(s) is/are doing in the stock market. Deciding which annuity rates are in your best interest greatly depends on your personality type. If you prefer safer investments at a constant and consistent rate, then the fixed annuity would be the better option for you. Alternately, if you don’t mind a little gamble, you might benefit significantly from some good rates achieved by smart/lucky stock market investments!

Annuities Tax – The Facts

Have you heard all the relevant facts about annuity? If not, then beware! Annuities tax will be that ‘unwelcomed surprise’ unless you can anticipate their cost. There is however such a thing as tax-deferred annuity. This means that your investment will acquire annual interest earnings, without a tax cost on top. In general, investing in an annuity is a sound way to over time, earn money on your investment. When planning future financial goals, it is reassuring to know that your annuity will continue to accumulate money until it’s time to cash-in on it. Eventually, when you do decide to withdraw money on your annuity, be aware that simultaneous to your enjoyment of the freedom this income has provided… there is a ‘tax tiger’ lurching around the corner. Don’t get caught-out in the jaws of the tax tiger! The only way to protect yourself from this predator is to act preventatively. By getting informed about the annuities tax that your particular plan will incur, along with getting the straight facts about how it’s annuity rates are calculated, you will be able to make an informed decision, and begin your annuity payments for a plan that most benefits YOU.