There are so many different types and variations of annuity products on the market that it is often difficult to determine what the right product for your specific scenario is. The first thing that you should do when undertaking this sort of assessment is make sure that you fully understand how the product works. After you have a firm grasp of the basics of the product, you will begin to discover application for its use.
An immediate fixed annuity is simply a contract established with your insurance company of choice in which you agree to pay a lump sum of money in exchange of a set number of fixed income payments. These payments are designed to annuitize over the course of a predetermined period of time, and provide consistent payouts to the annuity’s beneficiaries.
Depending on the length of the contract, these payments may continue for 10 years, 20 years, 30 years, or even for the life span of the account owner or annuitant. The lifetime option is used frequently for retirement planning purposes.
An immediate annuity is different from a fixed deferred annuity by way of distribution start dates. The deferred annuity will begin income payments to the beneficiary at an established date in time. The immediate annuity starts the contract one period after the annuity is purchased.
Although the deferred annuity is more frequently used in retirement planning, the immediate annuity can be used for specialized purposes as well. One such method is to use an annuity to fund a life insurance policy or other fixed income need. The annuity is purchased with a lump sum of cash, and then monthly distributions can be used to fund other insurance products. This allows you a consistent and dependable income stream to ensure that your policy does not lapse.
It is obviously important to consult an experienced professional before implementing any sort of insurance funding program, though simply recognizing the possible use of the product can give you a considerable jump start. Understanding financial principles can open new and exciting windows into creating and maintaining your own personal wealth.
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