Annuity FAQ: Answers To Some Basic Annuity Investing Questions

* How much should I invest in an annuity?

The amount of money that you invest in an annuity will depend largely on
your capability to pay the premiums offered by the assurance company. Things
to consider when putting money to an annuity include:

- Your probable financial needs

- Type of investment portfolio

- Alternatives available

The most important thing to consider is your financial needs, especially at
times when you really need cash to finance something like the birth of a
child delivery or an unforeseen accident or illness. However, you must also
consider the regulations on withdrawal against the annuity, because it can
be a bad scenario if you find yourself being served a penalty just because
you withdrew large amounts from your annuity account when it was not
permitted on the plan you purchased.

* What is a deferred annuity?

A deferred annuity pays out to investors interested in getting an income
from an annuity, but who want the payments to begin some time in the future,
usually at retirement. Or, they may want the insurance company to invest the
money for a few years to increase the payments. A tax deferred annuity
allows income tax to be deferred until the money is withdrawn, and you can
contribute as much money yearly as you like.

* What is an immediate annuity?

An immediate annuity is an investment policy usually purchased from an
insurance company. Immediate Annuities are sometimes known as Single Premium
Immediate Annuities. Immediate annuities are commonly purchased with a lump
sum and used as a retirement investment. In an immediate annuity, the
investor begins to receive lump sum pay-outs anywhere from immediately to
one year from the date of purchase. Generally, payments begin one month
after investing in the annuity.

Immediate annuities can be fixed or variable. While a fixed immediate
annuity payment depends on the amount you contributed, your age, as well as
the interest rate at the time or purchase; a variable immediate annuity
depends on the type of investment purchased.

There are a variety of different options available to you when purchasing an
immediate annuity. You can decide whether you would like a set period of
payments or a lifetime of payments.
You can also decide on whether the payments are solely for the person who
holds the policy or also for a secondary person, such as a spouse.

* What are the advantages of annuities?

There are three principal advantages to an annuity:

1. Tax-deferred accumulation. This allows you to set aside the funds that
you pay into the annuity for as long as you want, without worrying about
exceeding federal tax limits.

2. Flexibility. An annuity can offer you a variable or a fixed return,
unencumbered by federal tax limitations.

3. Security. An annuity offers a fixed-income payout option which would
grant an income that cannot be outlived.

* How will I receive my annuity payments?

There are several pay-out methods available when you begin receiving annuity
payments. With some options, you or your beneficiaries can select how you
want to be paid. The following are some of these:

You can get income for your entire lifetime even when the money in your
annuity account has been used up. This is advantageous if you live to an
advanced age because it will maximize the income that you will receive.
However, there is a risk
involved: when you die, all the money cannot be claimed, even by your
assigned beneficiaries. If you die young, you simply lose this money.

Another is the joint and survivor annuity where it pays you during your
lifetime, and after your death your beneficiary (usually your spouse) will
also be paid during his or her lifetime.

You can also refund your annuity, meaning you're gaining income for life.
However, when you die, the portion if the income payments that you have not
collected will be the only amount that your beneficiary receives.

About The Author: Ammon Yorke is editor of http://www.annuityyes.com, the
online guide to Annuities. He also writes Annuity FAQ's for
http://www.prettygreatanswers.com/articles/AnnuityQuestions/ .