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The topic of insurance can be confusing. It becomes especially confusing to many people if you ask them what exactly annuity insurance is? When you ask people, usually one of 3 things will happen. First, they may pause and say, can you repeat the question? Or, they may give you an answer that is totally wrong. The third likely scenario is simply a blank stare from them.
So the question remains, what is an annuity insurance policy? An annuity insurance policy is a contract a policyholder purchases from an insurance company. You pay the insurance company a specific amount of money which is designed to grow in value. The insurance company provides payments to the person holding the policy at specific time periods. There are numerous options on the frequency the payment is made including monthly, quarterly and annually.
What traditionally occurs is that annuity policies are set up to pay after you retire. This way, there is a steady flow of money being received.
There are many advantages to having an annuity policy. The benefits include:
Tax deferred investments: Many investments are taxed each year, but with money invested in annuity insurance, all capital gains and investment earnings are tax deferred until the money is withdrawn. By deferring tax payments, the overall value of the policy is built quicker. The benefit of deferring tax payments is your money will sit in the account and grow. In essence, you will make money off of the tax deferred money you will owe.
Income for life- Payments made at specified time periods last as long as the policyholder is alive. This provides financial security in later years of life.
Tax free transfers- Generally transfers between different mutual funds are taxable, but annuity insurance allows policyholders to rebalance their annuity investment portfolios without tax consequences.
An annuity provides a guaranteed income stream for life which in today’s difficult economy can added a lot of peace of mind. It is important to keep in mind that you will have the ability to withdraw your money without penalty at the age of 59 ½.
Historically, money invested in the stock market will grow. The key is remembering that this is over a time period of at least 10 years. Keep in mind that you need to analyze the long term as it pertains to making money in the stock market.
Today is the day to learn more about annuities. It is important to do your own research before deciding on the type of annuity insurance policy that is best for you. In today’s complex financial marketplace, it is more critical than ever to prepare for retirement and the years that follow to ensure financial security.