With an annuity you’ll find a rewarding combination of safety, tax deferral and personal choice.
An annuity is an insurance contract. This contract is created when an individual makes a payment (or a series of payments) called premium, which will grow with interest that is tax-deferred. In return for this premium, the insurer guarantees periodic payments back to the individual, either beginning immediately or at some future date. The defining characteristic of an annuity contract is the option to receive these payments as a guaranteed income until the death of the person or persons named in the contract.
Annuity contracts in the U.S. are defined by the Internal Revenue Code. They have features of both life insurance and investment products, but are only allowed to be sold by insurance companies. And because insurance companies are regulated by individual states, some contracts, features and options may not be available or may not be exactly the same in all states.
Annuities can be classified in different ways. It sometimes can be confusing, as the types are often mixed and matched to get new features and contracts. When you’re comparing, keep the following broad classifications in mind.