What is Annuity Life Insurance?
Annuity life insurance, despite the terminology, isn't really life insurance at all. Instead an annuity contract is one where a life insurance company agrees to pay an 'annuity' to the policyholder in exchange for premiums paid at regular intervals. It is a long term option and should not be viewed as a savings account.
There are various types of annuity life insurance. The differences usually apply to 1) when benefits are received, 2) how premiums are paid, or 3) if it is a fixed or variable annuity.
What does this mean in practice? Annuity life insurance can be immediate or deferred. In the case of an immediate annuity income payments begin almost as soon as you pay your premium. In contrast, deferred annuity payments start much later.
The main benefit of buying immediate annuity life insurance is that you can obtain funds immediately - it's often suited for those who are about to retire. Deferred annuities, on the other hand, are aimed at the accumulation of funds on a tax-deferred basis - in short your income is delayed until it suits you.
You may pay for your annuity life insurance by a single installment premium. Single premium contracts mean you pay only one premium while an installment contract
is paid in series - usually flexible - you pay what you want, when you want with some limitations.
Your annuity life insurance contract can be fixed, variable, or combined. If your annuity is deferred, interest is due for the accumulated premiums. The amount you pay will be determined when your payments start. A variable annuity accrues interest on the accumulated premiums and varies with the performance of certain investments. Combined annuities allow a mix of fixed and variable annuity.
A variety of charges are typically due on annuity life insurance contracts. These include a percentage of premium charge, contract fee, transaction fee, surrender charges. Make sure you understand the different types of charges that are due by you.
Make sure you can afford the premium payments on annuity life insurance and know whether the contract is flexible enough to let you change the amount and frequency of your premium payments. For example, if you stop paying your premiums what happens?
When shopping for annuity life insurance compare quotes for similar contracts but make sure that you understand what you are getting for your money.
