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Welcome to Direct Annuity
This website contains independent information and resources to help consumers better understand annuity investments, obtain annuity quotes, and make informed decisions when purchasing annuities.
What is an Annuity?
An annuity is a contract between a consumer and a life insurance company which has certain characteristics of both life insurance and an investment. But an annuity is not the same as life insurance. An annuity is for you and your future, whereas life insurance is for your dependents when you are no longer there to provide for them.
Types of Annuities
Different types of annuities are used for different purposes and each type of annuity has advantages and disadvantages. There are three main types of annuities:
- Fixed annuities
- Variable annuities
- Indexed annuities
Depending on whether you want to start withdrawing income now or in the future, the annuity will be classified as either immediate (income now) or deferred (income in the future).
If you are close to retirement you should consider an immediate annuity which begins paying out immediately. However, if you are still years from retirement, a deferred annuity is a better option because it has the ability to earn more income and accrue more assets over a longer period of time.
Immediate Annuity
An immediate annuity is primarily used as a vehicle for distributing savings with a tax-deferred growth factor, and is commonly used to provide retirement income.
Distributions may be either level or increasing periodic payments for a fixed term of years or until the ending of a life or two lives, or even whichever is longer. It is also possible to structure the payments under an immediate annuity so that they vary with the performance of a specified set of investments, usually bond and equity mutual funds. Such a contract is called a variable immediate annuity. See also life annuity, below.
For tax purposes, every payment received is a combination of a return of principal (which is not taxed) and income (which is taxed at ordinary income rates, not capital gains tax rates).
Deferred Annuity
A deferred annuity is primarily used as a vehicle for accumulating savings with a view to eventually distributing those savings as an immediate annuity or as a single lump-sum payment.
Gains in account values (due to capital gains or ordinary income) are not taxed until those gains are withdrawn. This is known as tax-deferred investment growth. The compounding of tax-deferred income and gains provides a greater investment base on which to generate higher returns.
There are three main types of deferred annuity:
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Fixed Annuity
A fixed deferred annuity is the most conservative type of annuity and grows by interest rate earnings alone.
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Variable Annuity
A variable deferred annuity permits allocations to stock or bond funds which could potentially earn a greater return, but the account value is not guaranteed to stay above the initial amount invested. Variable annuities offer a wide array of investment options that are more risky but could yield big rewards if managed appropriately.
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Indexed Annuity
An indexed deferred annuity may have features of both fixed and variable deferred annuities. An equity indexed annuity may have the potential to generate higher returns than a fixed annuity and the insurance company typically guarantees a minimum return. However, an investor could still lose money if the policy is surrendered (canceled) early, before the end of a break-even period.
Please take some time to explore this site and learn more about the investment options offered by annuities and how you can manage your retirement plan.
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