Advertise with Us
Bookmark and Share

Do you want to plan for your retirement but don’t know where to start?

In Uncertain Times are you Prepared for the Future? Do you Know how to Maximise your Assets to Ensure you Are not subject to the Ebbs and Flows of Financial Markets?

There are hundreds of people that search for information on life insurance annuity every week. There is no question that by investing in a life insurance annuity can be a great method of safely saving tax free money for your retirement.

It is important that you are aware of the benefits and the drawbacks of investing in a life insurance annuity. This will ensure that this type of investment will suit your needs.

First things first. What is an Annuity?

Essentially an annuity is a contract between a policy holder and an insurance company, where an amount of money is initially paid by the policy holder, in exchange for later guaranteed payments to the policy holder, on a continuing basis, for a specific period of time.

The Basics of Life Insurance Annuity.

Annuity insurance is a contract between the policy holder (the insured) and the insurance company (the insurer), where money is paid to the insurance company in the beginning (or sometimes over time), in exchange for the value of the policy or income payments, at a later stage.

Most people that set up an annuity, begin receiving payments once they retire; thus ensuring a continuing income.

Every type of annuity has two fundamental principles. Firstly, whether the payout is immediate or deferred and secondly, whether the payouts are fixed or variable.

An Explanation of the Different types of Annuities.

There are two main types of annuities; fixed and variable. To work out which option is best for you, you need to work out what you want from your annuity.

Do you want to be assured a fixed income during your retirement? If so, a fixed annuity is most likely right for you. You will receive a fixed amount every month (or quarterly or annually, based on your agreement) for the rest of your life.

However, the price for removing the risk means that you will miss out on further growth opportunities.

If you are not too worried about receiving fixed annuity payments every period, a variable annuity may be a better option for you. A variable annuity will allow you to ‘risk’ your investments to increase your assets while still getting a minimal payment.

It is important to understand that with this sort of annuity, your insurance company will usually agree to make minimal annuity payments to you (whether monthly, quarterly or annually), and you will receive larger or smaller payments that will vary based on the performance of your investments.

An annuity IRA (Individual Retirement Account) is another type of annuity that you may like to look into. An annuity IRA is contract between insurance company and the insured, whereby the insurer pays a particular amount (usually monthly) to the policy holder, commonly commencing at your retirement.

These payments continue for life. Be wary that when setting up an Annuity IRA as there can be costly fees to initially set it up. Shop around for the best deal, as most insurers have differing annuity rates and fees.

I thought Annuities were Tax-Free? Is this True?

Before you consider whether an annuity is right for you, you should be aware of the annuity tax that you will be required to pay. Yes annuities promote tax free savings during the accumulation phase, but are you aware that once you begin receiving payments (when you annuitize your policy) your gains are taxed at your standard income tax rate?

Are you aware of any other annuities tax that you will may to pay? Be sure to ask your potential life insurance annuity provider or financial advisor for full details of any other taxes and penalties that may apply.

Before investing in a life insurance annuity you need to know that when you add your payout from an annuity (which its own, may fall in a lower tax bracket) to the existing income of the recipient can occasionally push the recipient’s earnings into a higher tax bracket, and can make you wonder whether it is really worth it in the first place.

This is why most people who invest in an annuity wait until they retire to annuitize their policy, so they will be taxed at the lower level and maintain an income. You should investigate what other annuity rates and annuities taxes that may be payable.

How often are Payments made? How do I Calculate my Payments?

When you decide to annuitize your policy, you should notify your insurance company. Then your life insurance annuity insurer will determine how often and how much your payments will be. Most life insurance annuity companies have several payment options, whether they are made monthly, quarterly or annually.

When it comes to working out your payments, your life insurance annuity company will calculate your payments using a mathematical equation. They will take into consideration numerous things, such as your age when you annuitize your policy, your life expectancy and the value of the dollar. There are heaps of online financial and annuity calculators that will help give you an approximate forecast of your payout from your annuities.

Simply type ‘online annuity calculator’ or ‘online annuity calendar’ into your search engine and you will find many links to these useful annuity calendar or calculators.

Once your annuity payments have begun, they will rarely change. Usually, there is a fixed period specified on your annuity policy. This means that your payments will be continually made to you for that length of time. If you happen to die within that period, your noted beneficiaries will receive the remainder of the payments.

When arranging to get an annuity quote, it might be worth arranging an appointment in person to get your personalized annuity quote if you are the kind of person who is uncomfortable giving your personal details and information about your financial position over the phone or through the internet.