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life Inusrance and Annuities Overview
Life insurance and annuities
Annuity, which is a contract to make regular payments for the rest of your life. Annuities may be issued in exchange for money or property and are not required to be purchased from an insurance company.
They occur in three types: single premium immediate annuities, single premium deferred annuities, and whole life annuities. Single premium immediate annuities offer fixed payments throughout their duration (from one year to infinity); however, they require a separate premium payment right away. Single premiums deferred annuities combine the simplicity of a single premium with the longevity of a deferred plan into one contract .
If a person dies before their anniversary date, the money is returned to the beneficiary. Whole life annuities offer fixed payments for life and require a premium payment each year. Immediate annuities are the most popular type of annuity. They offer a guaranteed income stream for life and can be used as a tax-efficient savings tool for retirees.
Immediate annuities typically have an annual rate of return between 2% and 3% (depending on the insurer). The amount of the annuity payment is based on a variety of factors, including age and gender. The longer you wait to purchase an immediate annuity, the lower your annual rate of return will be. However, declining interest rates have made immediate annuities more attractive than ever before.
How life insurance and annuities can complement each other
There are many different kinds of life insurance. A policy can be temporary or permanent. It may have cash value – or not. But the one defining feature of all life insurance policies is a death benefit. It’s the most important reason to get a policy, and how it is almost always described: when people say they have a $1,000,000 policy, it means that a $1,000,000 benefit will be paid to their beneficiaries upon their death.
If you are the beneficiary of a life policy, what you do with your share of that benefit is up to you. Insurance companies typically give beneficiaries the choice of getting their payment in one of three different ways:
- A lump-sum payment. This is the most popular option, and the default choice: you get a large amount of cash deposited directly to your bank account, to do with as you please.
- Installment payments. You can also choose to have the benefit amount sent to you in a series of payments over time. The insurer holds the money in an account that can pay interest and sends you a monthly check for whatever amount you choose until the principal runs out. If you decide you need more each month, you just ask the company to increase the amount – but the principal will run out that much sooner.
- An annuity. The insurance company takes your benefit payout, invests it for the long term on a tax deferred basis, and in return, they provide a monthly stream of income that lasts for the rest of your life.
Benefits:
- Financial Security
- Secure your Child’s Future
- Prevent Loan Burden
- Retirement Planning
- Tax Benefits
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