If you decide an annuity is an appropriate investment for you, you’ll need to answer four questions to determine the kind of annuity best suited to your needs.
How secure do you want the annuity to be?
- I want the returns from my annuity to be at a guaranteed pre-determined interest rate: Fixed annuity,or
- I want a return that varies with the success of the investments made for me by the insurance company: Variable annuity.
How do you want to pay for the annuity?
- I want to make a single, lump sum payment for my annuity: Single premium annuity,or
- I want to make ongoing payments at intervals: Flexible payment annuity.
When do you want to begin getting returns (payout) on your money?
- I want to begin receiving the income from my annuity right away: Immediate annuity,or
- I want to begin receiving the income at some future date (e.g., at retirement): Deferred annuity.
How do you want deferred proceeds to be paid out?
- I want payments for the rest of my life: Straight life option,or
- I want payments for life and for the rest of my spouse’s life: Joint and survivor option,or
- I want payments for life, but if I die before collecting all the premiums I paid, I want my beneficiary to collect the remaining money: Life annuity with period certain option.
For example, after receiving an inheritance, you could decide to invest a lump sum of money right away, and receive a specified interest rate beginning now for the next five (for example) years.
In that situation, you might want to buy an immediate fixed annuity and pay for it with a single premium.
