By: Shane Flait
You choose an annuity, like any investment, to achieve a goal. Knowing the benefits and disbenefits of an annuity is important to devising your strategy. This article outlines some of each.
Deferred annuity benefits:
A deferred annuity is an investment vehicle for accumulating a lump sum of money. The benefits it offers are:
* A tax-shelter that defers annual taxes on your earnings within your annuity contract. So, you may potentially grow your investment faster than other investments that yearly lose a portion of their earnings to taxes.
* You can contribute any amount you wish to your deferred annuity from any source.
* You can arrange to make your contributions through a flexible payment program.
* You can choose your annuity investment type - i.e. fixed, indexed, or variable - as you wish. Specifically, you can choose a fixed deferred annuity to assure a guaranteed growth rate. Your investment protection comes from the insurance company's financial strength and its state regulations backup insurance.
* You can choose how to convert your lump sum to an income stream (annuitization) or convert to another product or investment. Taxes will be due if you take the money out.
Immediate annuity benefits:
An immediate annuity gives you an income stream. Its benefits are that:
* You can convert a lump sum of money into an income stream for a finite term or for the remainder of your life.
* Your annuitized payments are assured as they come from the insurance company under your annuity contract. The assured payments can be fixed (under a fixed annuity) or be variable (under a variable annuity). Again, the assurance of your payments comes from the financial strength of the insurance company and its state-regulated backups.
* You may use this as retirement income.
* You may assign those payments to someone.
* You can use those assured and ongoing payments to pay some obligation or as premiums for another product such as life insurance.
* Converting a lump sum of money into an income stream may protect your money from Medicaid in some instances since it treats lump sum assets differently from an asset in the form of an income stream.
Each annuity carries specific contract obligations that include fees, surrender and withdrawal terms and conditions. Here are some important issues to be aware of.
Disbenefits of Deferred Annuities
* Deferred annuities have a certain amount of illiquidity. You can't just cash in your funds when you want without incurring fees or penalties.
* All withdrawals from deferred annuities are considered taxable earnings until you've withdrawn all earnings to date.
* You're required to pay a surrender fee of up to 10% over the first perhaps 10 years - the fees decreasing each year. You may be limited to only a 10% withdrawal per year without triggering the surrender fee.
* If you're under 591/2, federal law imposes a 10% tax on whatever you withdraw - in addition to whatever taxable income it triggers.
* Because so many options and guarantees are offered with variable annuities, your investment growth my may suffer from excessive fees.
Disbenefits of Immediate Annuities
* Once an annuity is annuitized - i.e. regular payments begin to you - the company won't generally convert the payments back to a lump sum for you.
* If you no longer need your annuity payments, you may be able to sell them to another party, but at a value that may be significantly less than their present value.
* Fixed annuity payouts for life are constant dollar payouts. Over an extended time such as 20 years, the purchasing power of those payments may fall by as much as 40% if inflation averages about 3%.
Because an annuity, unlike other types of investments, is a contract with an insurance company, it involves insurance-related promises and obligations. These add cost and fees to annuities that other taxable investment types don't have. And it tends to make them considerably more illiquid.
But annuities have unique properties - like a life annuities, and payout properties - that help you achieve goals you can't with other investments. Knowing how to get the benefits of annuities without stumbling over their disbenefits requires careful planning.
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How To Choose A Suitable Life Insurance Policy
By: Ray Anwan
When it comes to choosing life insurance, the myriad of options makes it difficult to know how to customize a policy to meet your specific needs. There is much more to a life insurance policy than simply choosing a term and amount, often buyers are left wondering if they did the right thing. As important as decisions concerning life insurance policies are, they are not easy to make. Carelessness is certainly part of wrong decision making when it comes to choosing of a suitable policy plan in life insurance; people are surprisingly eager to invest money without sheer knowledge of what they are doing.However, even those buyers who try to be diligent lack a decision making framework to be successful. Okay, you've determined that it's appropriate for you to buy a life insurance policy which product should you select. The following are tips to help you make informed decisions when it comes to choosing a life insurance policy.
• Pinpoint and define your purpose for getting the life insurance and then get information on the different product available in the market. Identify the trade-offs associated with each of the alternatives. No product is better than all others in all respects, so trade-offs are usually important to note. It may take considerable effort to uncover the strengths and weaknesses of each options, even then there will still be some iota of doubt. Weigh the trade-offs and choose the best option. A casual approach may suffice though they are sophisticated quantitative techniques to evaluate these measures.
• For a lot of people, the length of time the policy should be for will be the decisive factor. Term insurance seems to be apt for short term needs because the high selling expenses of most cash-value products makes them uneconomical for short holding periods. Provisions that would last into retirement kind of require cash-value products because term insurance is usually a poor value at older ages. If the holding period is not of certainty then term is a safer choice. From an asset-allocation perspective, cash-value products may belong in an optimal portfolio because a lower long-term outlay translates into a higher after tax rate return.
Read More..
When it comes to choosing life insurance, the myriad of options makes it difficult to know how to customize a policy to meet your specific needs. There is much more to a life insurance policy than simply choosing a term and amount, often buyers are left wondering if they did the right thing. As important as decisions concerning life insurance policies are, they are not easy to make. Carelessness is certainly part of wrong decision making when it comes to choosing of a suitable policy plan in life insurance; people are surprisingly eager to invest money without sheer knowledge of what they are doing.However, even those buyers who try to be diligent lack a decision making framework to be successful. Okay, you've determined that it's appropriate for you to buy a life insurance policy which product should you select. The following are tips to help you make informed decisions when it comes to choosing a life insurance policy.
• Pinpoint and define your purpose for getting the life insurance and then get information on the different product available in the market. Identify the trade-offs associated with each of the alternatives. No product is better than all others in all respects, so trade-offs are usually important to note. It may take considerable effort to uncover the strengths and weaknesses of each options, even then there will still be some iota of doubt. Weigh the trade-offs and choose the best option. A casual approach may suffice though they are sophisticated quantitative techniques to evaluate these measures.
• For a lot of people, the length of time the policy should be for will be the decisive factor. Term insurance seems to be apt for short term needs because the high selling expenses of most cash-value products makes them uneconomical for short holding periods. Provisions that would last into retirement kind of require cash-value products because term insurance is usually a poor value at older ages. If the holding period is not of certainty then term is a safer choice. From an asset-allocation perspective, cash-value products may belong in an optimal portfolio because a lower long-term outlay translates into a higher after tax rate return.
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Various Benefits of Going for Life Insurance
By: Bob Y Grant
When it comes to financial security, investing on life insurance is one of the most important things to do. Not just security, but there are some other benefits for this. You can get a tax deduction option. So, while investing in the same, you need to completely understand the term and the plan of that particular policy. Keep all your dependents in mind and consider options. Take adequate time in understanding how the policy of life insurance can actually benefit your dependents. If you take a wrong decision, then you may end up with the wrong policy.
Once you plan to go for life insurance policy, you need to gain a better picture of your affordability and future financial obligations. This would help you to take a better decision about the insurance plan that suits your needs. It could be the best financial decision that can ever help you or your family. So the most important factors that you need to consider while going for a life insurance plan are: the term, the requirements, the premium that you need to pay, the benefits and the coverage.
Depending upon your needs and income, you can take a decision about the policy. Not only that you also need to consider various benefits that your dependents enjoy through the plan. For this, you need to analyze various types of life insurance plans, and do a research about it. Apart from that, you should also be confident about paying the premium on time.
We all know the fact that all these insurance companies invest the money in various places to gain the money back. If you can ensure that your money is invested in the government projects, then your money is safe.
Like any other kind of investment, even life insurance has its share of advantages as well as disadvantages. You need to properly understand them. Insurance companies gather funds from the general public and utilize them in bigger economic projects. You can also reduce your tax through these policies. The extent of the reduction depends upon the nature of the policy. But you need to be careful while investing, as some companies force you to put money on policies which are not that beneficial; so be careful. But on the overall, investing on it is considered a wise move and you should know about various benefits of going for life insurance.
So this way, you can pave way to a more secure life for you and your family through the right kind of policy. But make sure that you spend adequate time and effort in finding the best way to go about this. Make sure you gain a better picture by researching a lot on policies of an insurance company. This will definitely help you in taking the right decision. Spending some time on the research will help you in the long run. So make sure that you give financial protection to your family with the help of the right policy. So get your quote today from a couple of insurance companies and plan a bright and secure future.
Read More..
When it comes to financial security, investing on life insurance is one of the most important things to do. Not just security, but there are some other benefits for this. You can get a tax deduction option. So, while investing in the same, you need to completely understand the term and the plan of that particular policy. Keep all your dependents in mind and consider options. Take adequate time in understanding how the policy of life insurance can actually benefit your dependents. If you take a wrong decision, then you may end up with the wrong policy.
Once you plan to go for life insurance policy, you need to gain a better picture of your affordability and future financial obligations. This would help you to take a better decision about the insurance plan that suits your needs. It could be the best financial decision that can ever help you or your family. So the most important factors that you need to consider while going for a life insurance plan are: the term, the requirements, the premium that you need to pay, the benefits and the coverage.
Depending upon your needs and income, you can take a decision about the policy. Not only that you also need to consider various benefits that your dependents enjoy through the plan. For this, you need to analyze various types of life insurance plans, and do a research about it. Apart from that, you should also be confident about paying the premium on time.
We all know the fact that all these insurance companies invest the money in various places to gain the money back. If you can ensure that your money is invested in the government projects, then your money is safe.
Like any other kind of investment, even life insurance has its share of advantages as well as disadvantages. You need to properly understand them. Insurance companies gather funds from the general public and utilize them in bigger economic projects. You can also reduce your tax through these policies. The extent of the reduction depends upon the nature of the policy. But you need to be careful while investing, as some companies force you to put money on policies which are not that beneficial; so be careful. But on the overall, investing on it is considered a wise move and you should know about various benefits of going for life insurance.
So this way, you can pave way to a more secure life for you and your family through the right kind of policy. But make sure that you spend adequate time and effort in finding the best way to go about this. Make sure you gain a better picture by researching a lot on policies of an insurance company. This will definitely help you in taking the right decision. Spending some time on the research will help you in the long run. So make sure that you give financial protection to your family with the help of the right policy. So get your quote today from a couple of insurance companies and plan a bright and secure future.
Read More..
How Do These Life Insurance Companies Manage to Make Any Money?
By: Matt Rubin
At some point in your life you may have wondered how do these Life Insurance Companies make money? I mean, they charge like $25 a month to provide a 30 year old man a 10 year $1,000,000 term life policy and even if less than 1% of the policyholders die that still would be very difficult to pay out those claims. How do they make this work? Do they find ways to wiggle out of paying claims? Many have a suicide clause for the first two years of the policy, but in every other instance they are required to pay death benefits. Even if the insured was driving drunk and caused his/her own death the insurance carrier would have to pay out death benefits.
Even with the best underwriting it is possible for the insurance carrier to pay out death benefits equal to the premiums collected. Companies, therefore, have to rely on big gains from long term investments like commercial real estate, stocks, and bonds to achieve great profitability. Most Life Insurance companies only invest 20% of their holdings in the stock market. Liquidity is an important factor in their portfolio as well because they can never be sure how much of their assets may be needed to fund operational costs and death benefits. High grade corporate bonds and short term commercial real estate loans are an excellent source of income for these Companies. The time value of money is a principle that allows Carriers endless potential to grow their holdings.
Read More..
At some point in your life you may have wondered how do these Life Insurance Companies make money? I mean, they charge like $25 a month to provide a 30 year old man a 10 year $1,000,000 term life policy and even if less than 1% of the policyholders die that still would be very difficult to pay out those claims. How do they make this work? Do they find ways to wiggle out of paying claims? Many have a suicide clause for the first two years of the policy, but in every other instance they are required to pay death benefits. Even if the insured was driving drunk and caused his/her own death the insurance carrier would have to pay out death benefits.
Even with the best underwriting it is possible for the insurance carrier to pay out death benefits equal to the premiums collected. Companies, therefore, have to rely on big gains from long term investments like commercial real estate, stocks, and bonds to achieve great profitability. Most Life Insurance companies only invest 20% of their holdings in the stock market. Liquidity is an important factor in their portfolio as well because they can never be sure how much of their assets may be needed to fund operational costs and death benefits. High grade corporate bonds and short term commercial real estate loans are an excellent source of income for these Companies. The time value of money is a principle that allows Carriers endless potential to grow their holdings.
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