The Insurance Annuity: What It Is and How It Works

Shawn Plummer

CEO, The Annuity Expert

When most people think of annuities, they think of retirement planning. However, there is another type of annuity- the insurance annuity. This type of annuity can be used for various purposes, including estate and tax planning. This guide will discuss what an insurance annuity is and how it works. We will also provide examples to help you understand how this annuity can benefit you and your family.

What Is An Insurance Annuity?

An insurance annuity is a contract between an insurance company and an individual that provides periodic payments, beginning immediately or at some future date. The payments may be made for a certain number of years, for the lifetime of the annuity holder, or some other specified period. The funds used to purchase the annuity may come from various sources, including savings, investments, or life insurance policies. Annuities can be used for various purposes, including retirement, estate, and income generation.

When an annuity is used for retirement planning, it can provide a steady stream of income that can last for many years. This can be especially beneficial if the annuity holder lives to a ripe old age. An annuity can also provide a death benefit to beneficiaries, which can help cover expenses in the annuity holder’s death. In addition, an annuity can be used to generate income during retirement. Many people use their annuities to supplement their Social Security benefits or pension payments.

What Is An Insurance Annuity

How Are Annuities A Form Of Insurance?

An annuity can be seen as insurance against the risk of outliving one’s assets. Annuity insurance is an investment product that pays out income for a fixed term or life. The key feature of an annuity is that it provides a guaranteed stream of income, which can be helpful in retirement planning.

There are different annuity types, which can be used in different ways.

For example, some annuities are purchased to provide income for life, while others are used to generate income for a specific period of time. Some annuities are also used to “ladder” assets, which means they are used to create a series of payments over time.

Annuities can be a helpful tool in managing risk and creating stability in retirement planning.

The Benefits Of An Insurance Annuity

Several benefits come with an insurance annuity.

  • First, as we mentioned before, an annuity provides a guaranteed income stream. This can be helpful in retirement planning, as it can provide a stable source of income that lasts for as long as the annuity holder lives.
  • Another benefit of an annuity is that it can offer tax-deferred growth. This means that the money in the annuity can grow without being subject to capital gains taxes.
  • The third benefit of an insurance annuity is that it protects against the risk of losing money to a stock market downturn. When the stock market goes down, the value of annuities generally stays the same.
  • Finally, an annuity can provide a death benefit to beneficiaries. This can help to cover expenses in the event of the annuity holder’s death.

The Drawbacks Of An Insurance Annuity

While there are several advantages to an insurance annuity, some drawbacks should be considered.

  • First, annuities could have high fees. This can eat into the money invested in the annuity and reduce the overall return.
  • Second, annuities are not entirely liquid. This means they cannot be readily cashed out like other investments without a penalty.
  • Finally, if interest rates rise after an annuity is purchased, the annuity holder cannot take advantage of the higher rates.

Next Steps

If you are looking for a way to provide a steady income during retirement, an insurance annuity may be the right option. Annuities offer tax-deferred growth and can help protect your assets from market volatility. However, knowing the fees associated with annuities and speaking with a financial advisor before making any decisions is essential. Contact us today for a free quote on an insurance annuity that fits your needs. We would be happy to help you get started on the path to a secure retirement.

What Is An Insurance Annuity?

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Frequently Asked Questions

How does an annuity differ from other retirement savings options?

An annuity differs from other retirement savings options because it provides a guaranteed income stream for a specified period of life.

Are insurance annuities a good investment?

Insurance annuities are suitable for retirees seeking a guaranteed income stream and principal protection. They are unsuitable for those needing excessive liquidity, flexibility, or higher potential returns.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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