ANNUITIES
Fixed Annuities
Equity Indexed Annuities
Variable Annuities
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Annuities
An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of
payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date.
Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary
a guaranteed minimum amount, such as your total purchase payments.
There are generally two types of annuities, fixed
and variable.
In a fixed annuity, the insurance company guarantees that
you will earn a minimum rate of interest during the time that your account is growing. The insurance company also guarantees
that the periodic payments will be a guaranteed amount per dollar in your account. These periodic payments may last for a
definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.
In a variable annuity, by contrast, you can choose to invest your purchase payments from among a range of different
investment options, typically mutual funds. The rate of return on your purchase payments, and the amount of the
periodic payments you will eventually receive, will vary depending on the performance of the investment options you
have selected.
An equity-indexed annuity is a special type of annuity. During the accumulation period – when you make either a lump
sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an
equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum
return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic
payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.
Variable annuities are securities regulated by the SEC. Fixed annuities are not securities and are not regulated
by the SEC. Equity-indexed annuities combine features of traditional insurance products (guaranteed minimum return)
and traditional securities (return linked to equity markets). Depending on the mix of features, an equity-indexed
annuity may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.
You can learn more about variable annuities by reading the SEC publication,
Variable Annuities: What You Should Know.
This information was sourced from the SEC.
http://www.sec.gov/answers/annuity.htm
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