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Many insurance companies offer various investment options, and one of them is an annuity. Therefore, a typical day for an insurance agent may include a question such as what is annuity for an investor. The simple, clear answer is that it is a type of investment vehicle in which the investor enters into an agreement with the insurance company to pay a certain amount of money after which they will receive payments for certain duration of time, either immediately or after a certain amount of time.

You may also note that the investment may experience growth, and that there are not taxes until the investor starts withdrawing, after which the eyes of the investor who asked what is annuity will become brighter and wider as they ask to know more about this lucrative option. This option is known as a deferred annuity, and in this type of annuity, the investor pays either a lump sum or a series of payments to an insurance company and they agree to be paid after a certain period.

A deferred annuity is the best way to save your money so that you can use it in the future, and the individual could end up making a lot of money from this type of investment. At the end of the investment period, the investor could choose to withdraw some of the funds on a regular basis, or to receive all the money at a go.

In addition, the funds in a deferred annuity do not pay any tax during the accumulation stage, and one only starts paying income tax after they start withdrawing money from this annuity. This already sounds too good to be true, and the individual who asked what is annuity may be wondering whether there is a downside to this type of annuity.

In truth, there is always a downside to everything, and the disadvantage of this type of annuity is that the individual does not have the luxury of withdrawing the money before the agreed date. If they have to withdraw the money before the time has passed, they will be charged penalty fees, which will go on decreasing until the agreed amount of time lapses, after which the surrender charges will no longer apply. These fees vary from one company to another, and it is important for the potential investor to read the terms of a particular company before choosing to invest with them.

The individual who inquired what is annuity should also be informed that in a deferred annuity, they have the option of choosing between fixed annuities and variable annuities. In a fixed annuity, the rate of growth is fixed, while in a variable annuity, returns are dependent on the performance of subaccounts.

A deferred annuity is a great way for an investor to plan for years after retirement, the returns can be quite substantial, and the investor and insurance company can enter into an agreement so that the investor receives payments for the rest of their life. With such an explanation, the investor will definitely be sold.