A fixed annuity is where you give a certain amount of money to an insurance company, and in exchange the insurance company agrees to pay you a fixed monthly amount for a certain period of time. In the case of a single premium immediate annuity (SPIA), the payments begin immediately. In the case of a single premium deferred annuity (SPDA), the payments don't start until a specific time in the future, for example at your retirement. So these policies can be used as tax-deferred investments, or can be seen as a way to convert a lump sum of money into a steady income.

Once your annuity payments begin, they will not change, even to account for inflation. A fixed-annuity investor has two choices for the term of the income stream:

1. You can specify a fixed period, for example 15 years, meaning that payments will be made for 15 years to you (or your heirs). These payments generally are a combination of principal and interest. If instead of immediate payout you choose deferred payment, the investment grows with taxes deferred on that growth, and of course the payments begin at the specified date.

2. You can annuitize. To annuitize means you are telling the annuity company that you want to receive payments until your death. And after that time is done, your heirs will not receive anything back. It doesn't matter if the payments are made for 1 month or 30 years, they stay the same provided the company stays in business, these payments stop at the investor's death. Annuitization is optional but arguably the most important angle to these investments, and explains why these investments are sold by companies with experience in figuring out how long the investor (sometimes called the annuitant) will live.

A fixed annuity may have various surrender provisions that will not allow you to withdrawing money for a period of 5, 10, or more years. However, depending on the company, fixed annuities may allow you limited access to your investment; usually the investor can withdraw the interest annually and up to 10% of the principal. An annuity may also have various hardship clauses that allow you to withdraw the investment with no surrender charge in certain situations, this is why it is always important to read the fine print.

Annuitization (choosing an income stream for life) can work well for person who knows they will be taking an early retirement. In fact, a fixed annuity can be thought of as a kind of reverse life-insurance policy. Where a life insurance policy gives you protection against premature death, the annuity policy offers protection against premature poverty; i.e., it addresses the risk of someone out-living a lump sum that they have accumulated. So when considering annuities, you might want to remember one of the original needs that annuitities were created to address, namely to offer protection against longevity.

Another situation in which a fixed annuity might have advantages is if you wish to generate monthly income and are extremely worried about loss of your capital, for example in a lawsuit. If this is the case, for whatever reason, then giving the capital to an insurance company to management might be attractive.

		- Select Type of Quote - Auto Home Life Health Long Term Care
		ZIP Code
		Clicking on "Start Quote" will redirect you to InsureMe.com to complete your quote request. Terms & Conditions | Privacy Policy