What is annuity is a question that is not new to most insurance company, and many agents are faced with the task of explaining this type of investment to potential clients. The simple answer is that it is a type of investment in which the investor enters into a contract with the insurance company after paying a certain amount of money, either at once or in premiums, and receiving returns either immediately or after a guaranteed amount of time.
This definition is quite general, and the investor who inquired what is annuity may want you as the insurance agent to narrow down your definition to a particular type of annuity. One of the more common types of annuities is a fixed income annuity, and the individual who wanted a definition to what is annuity may be advised that a fixed income annuity is one in which an individual invests money, and is paid a fixed return every month after a certain amount of time as agreed in the contract.
The main purpose of a fixed income annuity is to preserve the capital of the investor, so that they will receive a fixed amount after every month for a certain period. It is advantageous in that, like all types of annuities, tax is not charged until the investor begins to withdraw money, after which income tax is applied.
The individual who inquired what is annuity should be advised that they are not allowed to withdraw any funds from this type of annuity until they attain the ripe age of fifty nine and a half, before which their withdrawal will be charged a ten per cent withdrawal penalty by the federal government.
The individual who wants to invest in a fixed income annuity should not do so before carefully reading the terms and conditions of the particular company. They should seek help from a professional, if need be, before they sign the contract so that they can familiarize themselves with all the fees involved as well as any bonus or rates involved.
Most fixed income annuities are not immediate, and the individual may have to wait a certain amount of time before withdrawing in one. If they choose this option, they will be charged surrender fees in case they end up withdrawing earlier, even if it is due to an emergency, therefore, they should consider this before they sign the contract.
The best contract in a fixed income annuity is one in which the insurance company does not charge a lot of fees, therefore, all your investment does not go towards paying the insurance company. All these details are usually included in the documents given to the individual before the contract is signed, and they should make sure that they study them all.
A fixed income annuity is best suited for individuals who are not risk takers, and who do not need to get rich quickly by risking their money on investment subaccounts. The payments are guaranteed, but in case investment options such as stocks and bonds are doing well, the investor will lose out.