What is an Annuity?
An annuity involves a contractual agreement between you and an insurance company, wherein the insurer commits to providing payments to you either promptly or at a later date. You acquire an annuity by making a single payment or a sequence of payments. Likewise, your payout can be received as a lump sum or spread out as a series of payments over a period.

Types of Annuities:

There are three primary categories of annuities: fixed, variable, and indexed. Here is an overview of how each type functions:

Fixed annuity: The insurance company guarantees a minimum interest rate and a set number of periodic payments to you. Fixed annuities are overseen by state insurance commissioners. It is advisable to consult your state insurance commission regarding the risks and benefits associated with fixed annuities and to verify that your insurance broker is authorized to sell insurance in your state.

Variable annuity: With a variable annuity, you have the flexibility to allocate your annuity payments to various investment options, typically mutual funds. Your payout is contingent on your contributions, investment returns, and associated expenses. Variable annuities are governed by the Securities and Exchange Commission (SEC).

Indexed annuity: This type of annuity merges characteristics of securities and insurance products. The insurance company credits a return based on a stock market index, such as the Standard & Poor’s 500 Index, to your account. Indexed annuities fall under the regulatory oversight of state insurance commissioners.

Why do people buy Annuities?
People often acquire annuities to assist in controlling their income during retirement. Annuities offer three key benefits:

1. Regular payments for a designated period, which can extend for the individual’s lifetime, the lifetime of their spouse, or another chosen individual.
2. Death benefits ensure that if the annuitant passes away before receiving payments, a designated beneficiary receives a predetermined payment.
3. Tax-deferred growth allows individuals to delay paying taxes on the income and investment gains from the annuity until they withdraw the funds.