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Types of Annuities

There are generally two types of annuities - Fixed and Variable.

Fixed Annuity

A fixed annuity is an investment vehicle offered by an insurance company, which guarantees a stream of fixed payments over the life of the annuity. The insurer, not the insured, which takes the investment risk also called fixed dollar annuity. In a fixed annuity, the insurance company makes sure that you would earn a minimum rate of interest during the time that your account is growing. The insurance company also guarantees that the regular payments would be a guaranteed amount per dollar in your account. These periodic payments can last for the certain amount of period, such as 20 years, or could even be with an indefinite period, such as your lifetime or the lifetime of you and your spouse.

Another benefit of fixed annuities is very much potential for life-long income. According to Duke University Sociology Professor Linda George, Ph.D, the number one fear of retired Americans is going out of income before running out of life. With CDs, and few other taxable accounts, there is the potential of outlasting your investments. As its name suggests, with a fixed annuity, you could even choose annuities with your payment options. This means you would surely have regular payments for as long as you live.

Variable Annuity

In a variable annuity, by contrast, you could even choose to invest your purchase payments from among a variety of different investment options, naturally mutual funds. The rate of return on your purchase payments, and the amount of the periodic payments you would finally receive, may differ depending on the performance of the investment options you have chosen for you.

Variable annuities are actually securities which are regulated by the SEC. Fixed annuities are not securities and are even not regulated by the SEC. Equity-indexed annuities carries unite features of traditional insurance products (guaranteed minimum return) and usual securities (returns linked to equity markets). Depending on the mixture of all features, an equity-indexed annuity might or may not be a security. The normal equity-indexed annuity is not registered with the SEC.

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