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Annuities are a way to ensure a steady payout during retirement. Several Insurance Companies sell annuities according to the customer’s preferences. Annuities give returns to the customers irrespective of the stock indexes.
An Indexed annuity allows a one-time payment or payment over a period of years. Indexed Annuity guarantees a minimum return amount. This minimum amount depends upon the policies of the insurance company.
Indexed Annuity returns are calculated based on an external stock market index for example the S&P 500 or the Dow Jones Industrial Average. With indexed annuity it is possible to take 10% of original amount in a year without any penalty. The Death-benefit feature exempts it from probate and returns are paid to the beneficiary.
In case of hospitalization, a customer can withdraw the complete annuity amount without penalty. Indexed annuities offer investments that are not subject to tax deduction. This allows a tax-free accumulation. The tax is paid, at the time of receiving the returns but at the ordinary income rates.
The equity indexed annuity invests money in stock markets in an indirect manner. In case of any loss, the principal amount is not lost. In case of a stock giving high returns, some percentage of the returns is paid to the customer as return. This is also known as a fixed indexed annuity.
In variable indexed annuity, a customer can chose from a variety of investment options like mutual funds. These are known as subaccounts. This allows the customer to diversify his investment portfolio. The death benefit and tax deferral features are provided in variable annuities.
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