What is Fixed Annuity?

Of all the different types of annuities, fixed annuity is the most helpful to those who need stable investment income. A fixed annuity is one of the different types of annuity, along with others such as variable annuity, tax-deferred annuity, and a lot more. Just as each type of annuity are beneficial for people with different needs, fixed annuity also has its own intended market. Fixed annuity is the best type of investment for people who are unemployed or about to retire. A fixed annuity can benefit them by providing them with a stable income source regularly over a period of time specified in the contract. To buy a fixed annuity contract, you can either buy a package and pay in full outright, or you can also pay periodically until the amount is fully paid. The money you invest then earns regular returns. If you are interested in a fixed annuity investment, here are some things you need to know.

There are two different types of fixed annuities. The first is life annuity and the second is term certain annuity. How do these two differ? A life annuity pays our regularly every year until the death of the annuitant, that is, the person who made the investment. The second type pays out regularly in shorter intervals until a specific expiration date specified in the contract. This expiration date has nothing to do with the death of the annuitant and can be decided upon freely.

The first type, life annuity, is a different subject altogether. It is a very popular investment method on its own. It can be further classified into straight life annuity or joint life annuity. Straight life annuities are very basic, and thus, are less expensive than joint life. A joint life annuity is also known as joint life with last survivor, which links the contract to the life of the annuitant's immediate beneficiary. This means that payments are continued as long as the immediate beneficiary is still alive. A joint life with last survivor annuity ensures that the immediate beneficiary will have a continuous source of stable income even after the annuitant dies. The main advantage of this is that the payments are made at regular intervals instead of a lump-sum payment, which shields the immediate beneficiary from heavy tax. However, as mentioned previously, a joint life with last survivor annuity is more expensive.

The second type of fixed annuity contract is called the term certain annuity, which will pay the annuitant a certain amount in a time stipulated upon previously. If the annuitant dies before that time, however, the amounts will no longer be withdrawn. This means that there is no life insurance aspect in this type of fixed annuity. It is simply an investment tool for oneself. It is also not adjustable, which means that the amount paid to the annuitant will remain the same, regardless of whatever changes may occur. This type of annuity, however, is beneficial for people looking for a way to invest present money for their retirement, and do not intend to invest in life insurance or provide beneficiaries with continuous income following his/her death. But regardless of what type of fixed annuity you buy, the main advantage is that earnings from fixed annuities are tax-deferred.

Thus, a basic fixed annuity can contain an insurance component as long as you buy a life annuity contract, and not a term certain annuity contract.