Annuities are a source of earnings for the retirees. The concept of annuities has become very popular among the Americans. In simple terms, the contract of the annuities take place when one gives money to the life insurance company. The amount may grow on a tax deferred basis and is paid to the owner in a number of ways.
One aspect that makes annuities preferred among people is that one can get guaranteed distribution on income till the death of the person or the persons who are in the contract. Most of the customers utilize annuities to collect more funds and enjoy good amount of withdrawals.
In the United States, the Internal Revenue Code defines the concept of annuities. Different states have their own set of rules for regulating annuities. There are variable annuities which have the features of both investment products and life insurance policies. The variable annuities are managed by the Securities and Exchange Commission.
An annuity is made up of two phases. In one phase, the customer deposits funds in the account and accumulates them over the years. In the other phase, the customers receive the payments over a period of time. The income payments may be spread over a period of time such as five years. They may even continue till the death of the customers(s) or the annuitant(s).
There are mostly three types of annuities: immediate annuity, life annuities and deferred annuity. In the immediate annuity, in exchange of a sum of money, the issuer is guaranteed some series of payments. In case of a life annuity, income is provided for the life of the annuitant. In case of deferred annuities, you can accumulate the savings and enjoy lump-sum payments at a later date.