Annuity Contract

Available Types

The contract has functioning akin to an investment account that promises to pay monthly installments to the annuitant until his or her death. Any kind of monetary escalation within the contract is free from any kind of tax liabilities.

Primarily they are of three types of Annuities Immediate, Deferred, and the Charitable Contract.

• Immediate Annuity contracts are types of annuities that are procured with a lump-sum cash amount. According to this contract, the monthly payments start within first year of the signing of the contract. This kind of annuity is preferred by retirees that want to make most of their pension plans. These individuals don’t have any fears for living longer than their money.

• Deferred Annuities have no provision of paying instantly. This arrangement has two stages – the savings stage and the income stage. During the savings stage, the annuity holder invests money in compliance to the contract for a fixed period of time. This increases the worth of the annuity.Just as the annuity holder reaches his retirement stage, he can select from the option of either taking a lump-sum of the total amount or to accept the equated monthly payouts for his remaining life. Deferred annuity contract is either variable or fixed. While variable contracts give payment according to the relevant financial index, the fixed contracts pay a pre-determined payout.

• Charitable Annuities make possible for investors to bequeath a lump-sum amount to some charity and receive yearly income for the lifetime. These contracts have an option of tax deductions at the instance of buying of annuities. Their basic functioning is like this – the annuity holder gets yearly income for his life time and whatever amount is left after his demise in the contract goes as donation to the pre-specified charity.

The best thing about the contracts is that they can be purchased at any point of time. During the income phase of the annuity, the amount of monthly income is decided based on the life expectancy of annuity holder. In case, the annuity holder dies before reaching the stage of his life expectancy, the insurance company keeps the leftover amount of the contract.

There are some insurance companies whose annuity contracts have provision for payment of lucrative bonus for stipulated time period. In case of deferred contracts, any funds that get invested during the initial years get an attractive bonus over the annual returns.

Choose your Contract wisely and reap the maximum benefits.

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