Are there different types of fixed annuities?

Actually, there are two types of deferred fixed annuities. Annuities purchased with a onetime premium are called single-premium deferred annuities. Annuities funded periodically over a period of time are called flexible-premium deferred annuities.

Q: What is an annuity?
A: An annuity is contract sold to you by a financial services company, often an insurance company. In essence, you buy an annuity in exchange for a series of payments that are dispersed at specific points of the life of an annuity contract. What makes annuities different from other forms of investment is the tax treatment they are given by the IRS. There are different types of annuities to choose from, and your own personal circumstances will dictate which is best for you.

Q: Are there advantages to buying annuities over other types of investments?
A: Every investment has pros and cons and should be considered according to your own personal circumstances. Here are three touted advantages to buying annuities. The interest earned on an annuity premium is not subject to current taxation until it's withdrawn. Current annuity interest rates generally are competitive with those from other fixed-interest vehicles. The value of your annuity is guaranteed by the insurance company. All fixed annuities offer a minimum interest rate guarantee.

Q: How does the current interest rate affect my decision to buy an annuity?
A: Most financial consultants recommend clients view annuities as a long-term retirement vehicle, so the current interest rate is not nearly as important as the long-term rate of return. Of course, that's not easy to predict, as the rate will fluctuate over time with changes in economic conditions.

Q: How do annuities differ from Life insurance?
A: Life insurance pays your family cash benefits when you die. Annuities typically begin paying you an income when you retire and may continue paying you an income for as long as you live. Most annuities stop paying money when you die; though some annuities can continue paying money to your family after your death if specified to do so.