Why Buying Annuities is a Good Thing

Annuity lump sum payment

If you are in the market for a new investment product, and you’ve already invested in bonds, commodities, and exchange-traded funds, you may want to consider buying annuities to improve your financial standing.

What are annuities? These are insurance contracts between you — the buyer — and an insurance company that comes tax free until you withdraw the money. An annuity requires the insurer to make monthly payments to you once you’ve hit a certain age (usually 65). These payments are either in the form of an annuity lump sum payment or are paid out in a series.

Why people are buying annuities: People are buying annuities to help them manage their income during retirement; they want a better, more practical form of monthly income instead of receiving a lump sum of cash that they may spend unwisely. Many annuity owners are very loyal to their purchases, with 93% reporting they still own their first one.

There are also death benefits for those who purchase annuities. If you die before you receive your first annuity payment, your benefactor will start to receive the payment in your stead to make sure the money has not gone to waste.

Annuity structured settlements: An annuity structured settlement functions just like an annuity, except it is designed for those who filed a personal injury claim. Those who are injured and gain money from insurance companies can opt to receive their money in monthly payments instead of having to deal with a lump sum.

How to buy annuities? First of all, you need to determine whether or not you qualify for an annuity. Eight out of 10 non-qualified annuity owners have an income below $100,000, so make sure you have the financial stability to afford this insurance package.

Many insurance companies sell annuities, as well as banks, brokerage firms, and mutual fund companies. However, each seller will have a different contract, so it is important to make sure you thoroughly read through this before signing anything. If you have any doubts or there is a confusing part in the document, have a lawyer or financial adviser present.

Any fees should be clearly mentioned in the annuity contract, especially fees regarding selling your annuity early. If you withdraw money too soon (from a variable annuity, for example), you may be charged a hefty fee. This “surrender charge,” occurs if you sell your annuity six to eight years after purchasing it, and it will drastically reduce the value of your annuity.
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