What is Deferred Annuity?

Given that there are several terms used in insurance and annuities, it is important to be extensively familiar with some terms you might come across. One of these terms is "deferred annuity'. An annuity contract is a contract that agrees to pay out a lump-sum payment every year. There are many types of annuity contracts, and a deferred annuity contract is one of them. But for interested investors, that is not enough knowledge to help them evaluate whether they need deferred annuity or another form of annuity. So what exactly is deferred annuity?

As previously mentioned above, a deferred annuity is a form of annuity contract. The word "deferred' implies its purpose. It delays the payments of whatever installment income and pays it in a lump-sum amount when the person who invested is ready to receive them. This means that the investor can decide when the payout will be received. Although different from a life insurance policy, a deferred annuity contract can also provide the investor with financial benefits to respond to cover the investor's death expenses. The beneficiaries of the investor, upon the investor's death, will get the whole amount invested into the annuity contract. This means that the beneficiaries will receive an amount inclusive of the principal amount of investment plus the additional income earned by the contract.

A deferred annuity contract comes in two main types. It can be a deferred variable annuity or a deferred fixed annuity. A deferred fixed annuity can give you fixed returns on your investment. This type of deferred annuity is more steady, but less flexible than a deferred variable annuity. A deferred variable annuity is an annuity contract that is more flexible, but has a higher risk. However, a deferred variable annuity can also offer you additional protection of your investment balance and other future income and payout against changes in the market figures.

Deferred annuity goes through two phases. The first phase is called the savings and investment phase. During this phase, you will invest your financial assets into your deferred annuity contract or account. The second phase is called the income phase. As implied, it is during this phase that whatever income your deferred annuity contract receives will be given to you. You can delay the release of this income so that you can use it to cover your future life expenses at a time when you need it. You can choose for the income to be released after you retire, and you can live off the money you invested in the deferred annuity contract. A deferred annuity contract is adjustable. You can add additional assets to the contract as time goes by.

A deferred annuity contract, however, is not tax-deferred. Whatever earnings you will get from the annuity contract will be taxed once you withdraw them. Despite this, there are several benefits to having a deferred annuity contract. In a deferred annuity, you can choose to receive your money at any time. That choice depends entirely on you. There are no bonds that tell you when you can or cannot withdraw. Thus, your investment is always available when you need it.