Protect Your Money Book 7. Insurance-Annuity Guide
Description
Think of life insurance as something you buy to give your family money in case you die and annuities as something you buy to give you extra money if you keep on living longer than expected.
The concept is that you invest money into an annuity in exchange for a regular, monthly paycheck when you retire for a certain interval of time usually for life.
In my opinion, why give someone else money to disburse it back to you when you can invest it in other instruments yourself.
Annuities are a sucker's bet because the money you spend on an annuity probably won't be recovered fully with that paltry monthly payment for several years to life later on. You will do much better buying a bond like a government savings bond and getting several percent interest on it per year.
Annuities are solvent because all insurance companies are backed by the State'' Insurance Office which will pay up if the insurance company goes bankrupt.
The big advantage of annuities is that the tax is deferred until you withdraw the money. Annuities come in all shapes and sizes but they each offer tax deferred income for the future.
Life insurance companies usually sell them. There are three main types;
Deferred Fixed Rate.
Deferred Variable.
Immediate.
It's advisable to buy an annuity only after you put money into your other retirement plans like the IRA, 401(k) or the 403(b).
You can pay for the deferred annuities either with a lump sum payment or by paying a certain amount of deduction out of your pay check.
The Deferred Fixed Annuity means that you receive a certain, guaranteed rate of interest on your investment which may be updated after a certain interval of time. In this way, it's just like a certificate of deposit at a bank.
The Deferred Variable Annuity means that you get to invest the money in whatever vehicle you want and the returns are dependant on those investments, on how well the mutual fund, stocks or bonds do.
Some variable annuities offer both a combination of fixed interest and a variable component, dependant on how well the investments do. The seller takes out a fee for managing the investment aspect of the annuity.
The Immediate or Single Premium Annuity is when you pay a certain lump sum fee and the seller calculates a certain, set monthly payment for you for life or for an interval like ten years. Some people buy them with the money they receive from a pension plan when they retire.
The minimum investment is usually $5000. Payments are usually calculated from mortality tables figuring on when they expect you to die. Since men live less longer than women, annuities may be a good deal if you're a man and expect to outlive the mortality statistics.
There are several options on how to receive the pay-out from an annuity:
A Straight Life Annuity pays you a set income for as long as you live, no more, no less.
Life Annuity With Period Certain is a situation where you receive a set monthly payment for life but if you die before the period certain expires, usually 10 or 20 years, your beneficiary gets regular payments until the period expires. Because of this feature, you will get a lower monthly payment than under a Straight Life Annuity.
Installment Refund Annuity is when you receive regular monthly payments until you die and if you die before what you paid in is used up, your beneficiary receives regular installments until the total payments equal that amount.
Joint & Survivor Annuity is an annuity which pays out to one or more designated persons until the last one dies.
The big advantage to annuities is convenience and security in knowing that you will be receiving a monthly payment for life plus the fact that the money you put aside is tax-free and your income tax on the interest is deferred until after you retire and start receiving the monthly payments. Unlike IRAs, you can put as much money as you want into them.
The concept is that you invest money into an annuity in exchange for a regular, monthly paycheck when you retire for a certain interval of time usually for life.
In my opinion, why give someone else money to disburse it back to you when you can invest it in other instruments yourself.
Annuities are a sucker's bet because the money you spend on an annuity probably won't be recovered fully with that paltry monthly payment for several years to life later on. You will do much better buying a bond like a government savings bond and getting several percent interest on it per year.
Annuities are solvent because all insurance companies are backed by the State'' Insurance Office which will pay up if the insurance company goes bankrupt.
The big advantage of annuities is that the tax is deferred until you withdraw the money. Annuities come in all shapes and sizes but they each offer tax deferred income for the future.
Life insurance companies usually sell them. There are three main types;
Deferred Fixed Rate.
Deferred Variable.
Immediate.
It's advisable to buy an annuity only after you put money into your other retirement plans like the IRA, 401(k) or the 403(b).
You can pay for the deferred annuities either with a lump sum payment or by paying a certain amount of deduction out of your pay check.
The Deferred Fixed Annuity means that you receive a certain, guaranteed rate of interest on your investment which may be updated after a certain interval of time. In this way, it's just like a certificate of deposit at a bank.
The Deferred Variable Annuity means that you get to invest the money in whatever vehicle you want and the returns are dependant on those investments, on how well the mutual fund, stocks or bonds do.
Some variable annuities offer both a combination of fixed interest and a variable component, dependant on how well the investments do. The seller takes out a fee for managing the investment aspect of the annuity.
The Immediate or Single Premium Annuity is when you pay a certain lump sum fee and the seller calculates a certain, set monthly payment for you for life or for an interval like ten years. Some people buy them with the money they receive from a pension plan when they retire.
The minimum investment is usually $5000. Payments are usually calculated from mortality tables figuring on when they expect you to die. Since men live less longer than women, annuities may be a good deal if you're a man and expect to outlive the mortality statistics.
There are several options on how to receive the pay-out from an annuity:
A Straight Life Annuity pays you a set income for as long as you live, no more, no less.
Life Annuity With Period Certain is a situation where you receive a set monthly payment for life but if you die before the period certain expires, usually 10 or 20 years, your beneficiary gets regular payments until the period expires. Because of this feature, you will get a lower monthly payment than under a Straight Life Annuity.
Installment Refund Annuity is when you receive regular monthly payments until you die and if you die before what you paid in is used up, your beneficiary receives regular installments until the total payments equal that amount.
Joint & Survivor Annuity is an annuity which pays out to one or more designated persons until the last one dies.
The big advantage to annuities is convenience and security in knowing that you will be receiving a monthly payment for life plus the fact that the money you put aside is tax-free and your income tax on the interest is deferred until after you retire and start receiving the monthly payments. Unlike IRAs, you can put as much money as you want into them.
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