Are Annuities a Good Investment Option?

Mickey | Financial | Monday, January 24th, 2011

Annuities are investment options where you enter into a contract with a financial institution to receive fixed or variable income as against your investment. It is an insurance product which promises to give a steady income after the expiry of some stipulated time. Annuity investments are basically of two types; fixed annuity and variable annuity. Variable annuity contains higher risk as your return depends upon the performance of the sub contracts you invest in.  As against it, the rate of return for fixed annuity is specified in the annuity contract which provides stability of income.

It is one of the best options, if you are looking for long term investment. There are various advantages of annuity investment.

Market downturn: It offers protection to the investor against the market downturn. Investors are guaranteed to get the fixed amount of income even in the unfavorable market conditions.  Variable annuity affects investors a bit as their return depends upon the performance of the products they invest in. But fixed annuity investors are not at all affected by any downturn in the market.  If you want to minimize risk, go for fixed annuity investment!

Long term goal: Annuities helps investors to meet their long term goals.

Guaranteed income: It is one of the best sources of income for conservative investor. It promises the investor the principal amount and the minimum rate of return. The income is guaranteed over a period of time that gives security by lowering the risk.

Best retirement policy: It provides possible source of steady income for your retirement days. Since, the investment guarantees a steady income after the expiry of certain time period, it is considered as one of the best retirement investment options.

Tax benefit: Investor also enjoys tax benefit for their investment. When he finally withdraws his money from an annuity, his principal amount is not taxed completely and all the interest received so far is taxed at the normal income tax rate.

The above points answer an important question: why you need life insurance ? We can convert our investment in insurance products into a stream of periodic returns either over the annuities life or a set number of years.

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