Annuity Basics

What is an Annuity

Simply put, an annuity is a contract between an investor and an insurance company. The investor agrees to invest funds with the insurance company via a single payment (Single Premium) or by multiple payments over a period of time (Flexible Premium) . At the most basic level, all annuity contracts require that investment payment(s) be made to an insurance company, followed by a period of accumulation and then finally a period of distribution.

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Common Uses for Annuities

Annuities have been in existence for well over two hundred years. The very first mention of Annuities in the United States was the use of these products by the Presbyterian Church in 1740 to provide security for the clergy and widows. Annuities allow you to accumulate tax-deferred funds for retirement and then, if you desire, receive a guaranteed income (this process is called Annuitization).

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Benefits of Annuities

The benefits of annuities can depend largely on the type of annuity contract being discussed and some annuity contracts have different benefits than others. You can infer many of the benefits of annuities just by considering the reasons why people purchase annuities… Secure retirement income, asset protection, etc. relate directly to the benefits of annuities.

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Disadvantages of Annuities

As with any financial product or investment medium there are always pros and cons. It is important that investors consider the drawbacks of annuities when considering an annuity purchase. An annuity expert can assist an investor in understanding these drawbacks and how they might apply to your unique financial situation and goals

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