Insurance--Annuities
Three types of
annuities
There are three
types of annuities. Each is different in the way money is invested.
A fixed annuity features a fixed rate of
interest for the money you invest. It is guaranteed by the insurance
company. There is no risk involved, but you will miss out on the gains
found in the riskier stock market. When you annuitize, your payments will
be fixed.
Variable annuities place your money in
investment options called subaccounts. These accounts are similar in form
to mutual funds. Each subaccount has a degree of risk that ranges from
aggressive growth funds to bond funds. You have the opportunity to make
substantial gains on your investment, but if the investments perform
poorly, you could lose out. The fees are usually higher with a variable
annuity as it costs you to switch your money among subaccounts. When you
annuitize, your payments will fluctuate with the performance of your
investments.
Equity-indexed annuities invest your money
in a fixed account which may earn interest based on the performance of a
stock index, such as the S&P 500 Index, the Dow Jones Industrial, the
Nasdaq Composite or the Russell 2000. You are given the opportunity to
earn money based on stock performance, yet retain the stability of a fixed
account. Yet, you essentially have a fixed annuity as the gains are often
fairly small. When you annuitize, your payments will be fixed.
