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Basics for the New Annuity Buyers

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Basics for the New Annuity Buyers

As a new annuity buyer you may be tempted to walk into your local financial or insurance company and ask to buy an annuity.  There is no such thing as an annuity.  There are thousands of annuity choices and when you have no idea what you are looking for you’ll end up having no idea what you walked out the door with.  Please review the following basics so you can be more informed for your first annuity shopping trip.

Terms You Should Know

Account Owner – This is simply the person who owns the contract.  That’s right; an annuity is nothing more than a contract.

Annuitant – This is the person that the contract is based around.  Essentially the payments will be made to a certain time based on the annuitant’s death date.

Beneficiary – The beneficiary is the person who makes all the money when the annuitant dies.  This is where you want to see your name on the contract.

Deferred Annuity – A deferred annuity is one where the payments begin a fixed period of time after the contract is signed.

Immediate Annuity – An annuity that begins to give payments back virtually as soon as the contract is signed.

Variable Annuity – This annuity doesn’t guarantee a certain return, but is partially based on an underlying security.  These are available in virtually all sectors you are interested in.

Fixed Annuity – This annuity has a guaranteed return per month based on the amount of money you pay for the annuity and how old you are.

Indexed Annuity – This is a less variable variable annuity.  These annuities are tied to some form of financial indicators and their payments depend on how well the indicators are doing.

Life Annuity – These annuities keep paying to the beneficiary as long as the annuitant is alive.

Structured Settlement Annuity – This is an annuity that is funded to produce a pre-determined amount based on the recipients needs, usually these annuities are awarded by a judge as some form of compensation.

Medicaid Annuity – A Medicaid annuity is simply an attempt to hide liquid assets from being lost if you have to go to long term care.  By selling everything and putting the revenue into an annuity you can receive a monthly payment while staying in the long term care for nearly nothing.  I would recommend long term care insurance instead of this as this loop hole will be shut down soon I’m sure.

Pension Annuities – A pension annuity is simply an annuity being paid into overtime as you work as an employee to be transferred to you when you decide to retire.  These are vanishing as 401ks are becoming more popular.

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