Know Annuities Well Before You Choose To Buy

by Anil Kumar ~ July 23rd 2018

Know Annuities Well Before You Choose To Buy Annuity insurance plans greatly make people able to take care of themselves in the later years of their life. These plans provide them with a guaranteed monthly income to help take care of their financial commitments as well as their daily life expenses. However, not everyone knows well about the offered plans and hence we are helping interested buyers to know annuities well before they choose to buy one.

Involved Parties

Contract Owner

The person who purchases the annuity contract and makes the monthly premium is known as the contract owner. In most cases, the contract owner is also the annuitant, however, this not necessary in each case.

Annuitant

Annuitant is the person who is named on the contract and is supposed to receive annuity payout after the contract matures or the annuitant retires.

Beneficiary

This is the person who is named as the inheritance of the annuitant and is supposed to receive annuity benefits in case the annuitant passes away. Most of the providers allow to choose more than one beneficiary and the annuitants can utilize the same.

Insurance Carrier

This the insurance provider company which receives the premiums and promises to provide a guaranteed payout every month after the retirement of the annuitant.

Advantages Of Annuities

Annuity plans are known for providing an alternate source of income after retirement and help seniors take care of their daily life requirements. The offered plans come with various advantages of retirement annuity plans and below we are mentioning few of them.

Guaranteed Income

All annuitant are provided with a guaranteed income every month so that they can manage their financial responsibilities and take care of their essential expenses. This amount greatly helps them to plan their expenses in advance and save for the unexpected expenses that may show up, all of sudden.

Share In Profit

There are plans that allow annuitants to invest a portion of their premiums into markets and provides the share in profits, depending on how their investment performs in the market. This increased income greatly helps the seniors to save for some unexpected expenses or another investment they would like to make.

Deferral from Tax

Now, this is a big advantage of investing annuities. The annuitants receive a deferral from taxes on the annuity amount that grows over the years. This means they don’t need to pay any taxes until they withdraw the amount accumulated after their retirement. This may seem trivial but helps to save a decent amount every year that might have been deducted as the federal tax on their income.

Creditors Protection

This is another unique advantage of annuity plan. If the annuitant has taken a loan to make some investment during their employment that failed miserably, they must have the burden of repaying the same after their retirement. However, it becomes more difficult to take care of loans if when your income has visibly decreased. If the annuitant has bought an annuity plan, they can keep receiving the guaranteed income to take care of their essential expenses and the creditors cannot their share in the same.

FAFSA Asset Status Exemption

Usually, parents and students who apply for a loan or any financial aid need to mention all their assets and investments, however, if they have bought an annuity plan, they get an exemption for the same. This means they don’t need to mention how much they have invested in annuities and what amount they are supposed to receive as the annuity payouts.

Disadvantages Of Annuities

Complexity

However, annuities are considered to bring a better return on the investments, they are a little complex to understand. Not everyone can easily understand how they work and how can they reap the most of their investments. Especially, the indexed and variable contracts are a little difficult to understand and even the experienced investors sometimes mistake to make the right decision for them.

Taxation

The case of taxation isn’t as clear as it should be. Only those incomes that are considered a return on principal get a deferral from income taxes implemented by the federal government. Other withdrawals are taxable as ordinary income and the annuitant has to pay a decent share of their accumulated amount as their taxes.

Surrender Charges

At times, the annuitant invests in an annuity plan but later realizes that the same isn’t the right choice and hence plans to withdraw their plan. For this, they will have to pay a hefty penalty which is known as surrender charges. Usually, the surrender charge is 7 percent during the initial years and later decreases by 1 percent every year.

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