Annuities can be useful in both the tax-qualified and non-qualified markets. The annuitant has the benefit of the investment management offered by insurers. This can be important for older persons who may desire to be freed of investment cares and management. Annuitants would enjoy monthly incomes at retirement age that are equal to or higher than those obtainable through the customary channels of conservative investment, if they are willing to have the principal liquidated and enjoy reasonably good health. Each year, the insurer would pay to the annuitant the current income on his or her investment plus a portion of the investment itself. If the buyer exercises care in the purchase decision, the net return on his or her annuity should prove competitive with investments of comparable quality. When tax benefits are considered, the net [Read more...]
What is Equity Indexed Annuity?
An equity-indexed annuity (EIA) also called simply indexed annuity is a non- variable annuity contract whose interest crediting mechanism is tied directly to some external index, such as the Standard & Poor’s 500 Index in the United States. Introduced in 1995 in the United States, EIAs contain elements of both fixed-value and variable annuities but that are not found in either. First, they offer a minimum guaranteed interest rate, typically 3.0 percent. This provides a downside guarantee. Second, they offer the potential for stock-market-like gains by tying the current crediting rate to equity indexes, thus providing upside participation. Most EIAs are issued as single-premium deferred annuities, although flexible- premium varieties are emerging. Most carry a maturity date of from five to ten years from issuance. [Read more...]
What is Variable Annuity?
variable annuity is an annuity contract whose cash values and benefit payments vary directly with the experience of assets designated to back the contract. Assets backing variable annuities, as with those backing variable life policies, are maintained in a separate account, and the variable annuity values directly reflect the accounts investment results. In contrast, the life insurer’s general account assets back the earlier discussed products. Variable annuities were first offered in the United States by the College Retirement Equities Fund, a nonprofit insurer specializing in the educational market. However, it was not until the mid-1960s that life insurers truly can be considered as having entered the market, only after some regulatory issues were resolved. The rationale for variable annuities is that they should offer, [Read more...]
