Immediate annuities are among the most popular insurance policy since some few past decades. This renowned type of annuity is a perfect tool or contract that guarantees a series income stream you may not outlive. So what is this insurance policy? Basically it is a policy that involves exchange of certain sum of money that assures the insured continuous series of payments.
How Does Immediate Annuity System Work?
Normally, the annuity contract has three main parties; the owner, the beneficiary and the annuitant where in most cases the owner and the annuitant are the same. The owner may be natural or non-natural person (perfect examples of non natural persons are partnerships, companies). The annuitant is the buyer of the contract who has rights and duties entailed under the contract. The owner is also subject to income tax of all payments made.
The contract policy is bought from an insurance company and the system is similar to other policies in the sense that payments are made in same way. In case of difficult and sorrowful situations like death of an owner with a balance, mandatory death benefits are paid by the insurance body.
Procedures In Buying Contract Policy For Immediate Annuities
- First the insured person makes a contribution or deposit to a trusted insurance company. The payment should be premium; the annuity happens to be among the major services of the insurance product line.
- Decide on the number of times you want to be paid (how often). Many people prefer the monthly payment.
- Consider the premium rates. You need to understand that the amount of payments you receive highly depends on the current interest rates. In other words, a higher interest rate symbolizes a higher payment for you. Once you buy the insurance policy in question, you get fixed immediate annuities rates; this means a fixed payment for the entire annuity period.
- Finally, you are required to state how long the immediate annuity will last; whether for a set period of time or for life.
Immediate Annuities Pros and Cons
You can get different opinions regarding immediate annuities pros and cons. Hence, most of the annuities have a dirty word in many financial business circles especially the financial advisors. The truth of matter is that they spell huge sums of money, complicated investment earnings guarantees and early surrender penalties. However, this is another different story for the immediate annuities.
The best immediate annuities policies are worthy exploring; it is stable and consistent. The policy helps you buy a good measure of financial security and comfort. You will certainly get monthly income or annual payment depending on your payout option.
With much said and done, no best immediate annuity is perfect. Most insurers have a certain percentage rule with an assumption of you increasing your withdrawal annually. Contrarily, many annuities never adjust their payment with increase in inflation.
The biggest downside of the immediate annuity is that you can’t get your money back once you purchase it. This means you have to keep some money in your hands in case of emergency.