What is an Annuity?

Before we discuss annuities further, let's answer the question 'what is an annuity?'. The word annuity has puzzled many investors. A large number of people who have annuities don't know how to invest in an annuity and some don't even know what an annuity is. So, what is an annuity? When investing in an annuity, you need to know certain rules governing your annuity or you will not benefit from your annuity the way you thought you could.

What is an annuity?

An annuity is a periodic payment that will begin at a specified or contingent date and will continue throughout a fixed period or for the duration of a designated life or lives. The annuity is the product of a life insurance company. It is not just an investment such as a stock or mutual fund or a bond. If you are thinking of buying an annuity there are many things that you need to know.

First of all there are many types of annuities. When purchasing an annuity, you need to know what type of annuity you are purchasing and what you can do or cannot do with the annuity. Below are brief characteristics of what different annuities are. There are more types of annuities than listed here and we shall discuss other annuities in other sections.

What is an Income annuity?

Some annuities such as immediate annuities will allow you to put money into the annuity then withdraw immediately in terms of monthly income.

What is a Deferred annuity?

Deferred annuities allow you to invest your money now, let it grow in your annuity portfolio and withdraw at a later date.

What is a fixed annuity?

A fixed annuity grows at a fixed (interest) rate and make payments at a fixed rate of return.

What is a variable annuity?

A variable annuity is a more popular type of annuity because it invests the money in mutual funds which usually yield a higher rate of return for your annuity portfolio.