Annuity Basics


Posted on 29th September 2009 by Rita in Annuities

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Annuities can be a complicated products, for now we will stick with going over the basics of annuities.

An annuity is a contract that provides income for a specified period of years, generally used to provide income for retirement years. Keep in mind annuities are long-term financial products. Annuities are unique in their ability to provide lifetime income, therefore provides protection against the possibility of outliving one’s income. The Annuitant is the person who receives benefits from the annuity.

All interest grows tax-deferred, allowing you to potentially accumulate wealth faster than if taxes were due on interest each year. Tax deferral means that any amount earned in an annuity is not taxed until earnings are withdrawn. This means interest, dividends and capital gains can accumulate without being subject to current income taxes. Taxes are paid at ordinary income rates, regardless of how long the annuity has been held. Tax deferral ensures that you do not pay a dime on your interest earnings until the funds are withdrawn. Annuities also outshine CDs and other savings plans in terms of the yield you will see on your investment.

Annuities are investment contracts where you make payments either in a lump sum or in a series of contributions over a specific amount of time to help provide income upon retirement. In addition to being used for retirement income, they can be used for any situation that requires a steady stream of income at some point in the future, such as to fund a college education.

To sum it up – in short. While life insurance protects against premature or unexpected death by creating an estate. Annuities protect against outliving one’s income by liquidating an estate. Annuities consist of funds set aside for a certain period of time, then the money is returned in increments as guaranteed income repaid to you or the designated beneficiary.

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Note: This blog is designed for general information purposes only. All information presented on this site should not be interpreted as legal advice and the author assumes no responsibility or liability for the actions taken or not taken by the readers based upon such information. For legal and tax advice contact your attorney or tax adviser.

Rita Sollie, Direct Insurance Representative with North Coast Life Insurance Company (NCL). No gimmicks or schemes here, just genuine and honest service. We don’t sell insurance, we solve problems. I welcome the opportunity to show you what NCL can do for your Life Insurance and Financial needs.
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