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Unfortunately, most people do not have adequate knowledge about annuities, something that is actually very important especially for seniors.   Typically, we think of getting a nominal check in the mail from the insurance company when we hear the word “annuity” but there is much more.  In summary, annuities are a type of income from an insurance company, which is often considered a part of an elderly person’s income.

There are different types of annuities and examples, one being the deferred annuity.  In this case, a special account is established in which money would grow over time.  This money is protected so the money is not simply spent.  In more than 90% of cases, people who have a deferred annuity account, the money is not converted to actual money.

As you will discover, there are also a number of benefits associated with an annuity.  Below, you will see from annuities and examples listed below some important information you need to know.

• Safety – Keep in mind that deferred annuities are not insured by FDIC.  However, insurance companies do use billions of dollars of assets to provide backing, which means to the buyer, risk has been eliminated.
• Tax Deferred Earnings – Another annuity example is that you get what is known as triple compound interest.  In this case, the principal has interest.  Additionally, there is interest on the taxed you pay, as well as interest on the interest paid.Interest Guarantee – You will also find that when an annuity reaches its completion, if you have not been provided with the minimum 3% annual due, the insurance company will add on the minimum guaranteed rate.  The good news is that there is no money lost in this case however, the minimum interest rate would be guaranteed, regardless.
• Competitive Interest Rate – For this, you will find that the insurance company typically established the interest rate associated with a deferred annuity contract.  In most cases, this is based on one or two points over the current CD rates.  Therefore, in addition to receiving a much high rate, but all of the interest is also tax deferred.  Now, there are some annuities in which you would be given a set rate spread out over a specified number of years.
• Annual Administration Fees – Unlike other ways of saving money, deferred annuities have no annual administration fee.
• Sales Fees – Once money is placed in the deferred annuity, you need to know that all of the money is yours, building over time.  Since there are no sales fees taken from the deposit, the money continues to build for you.
• Withdrawal Privileges – Unfortunately, many people get very confused about this aspect of annuities.  Remember, your money is not being held from you.  In fact, there are many ways in which you can get your money without having to pay a huge penalty for withdrawal.  For instance:
  • If you find yourself in a position of going into a nursing facility, typically an insurance company would let you withdrawal money needed without charging you a penalty.
  • To enjoy free withdrawals, you would usually be required to pay an annual 10% fee.  However, you are allowed to take out 10% of the money in your annuity without being charged a penalty.
  • For your guaranteed income, you have the option of converting some or all of the account. In the case of being told you have some type of terminal illness, the money can be taken out without penalty.
  • When looking at the interest rate, this is usually based on a formula associated with your age.
• Creditors – Although you would need to determine what your state allows, often money held in a deferred annuity account would be protected even if you find yourself in a position of financial stress.
• Probate – Another aspect of annuities that varies by state, if your state applies this, any probate asset would not include the annuity.  This means any fees associated with probate would be avoided and money going to beneficiaries would not be delayed.
• Surrender Fees – Finally, annuities and examples involves surrender fees, which means in some cases, getting to your money would cost you a small fortune.  However, often an insurance company would have some demands for fund assessment.  This means surrender fees might go down over time and in fact, they will usually go away completely at some point.

Always remember that deferred annuities are intended to be used for long-term investments.  This means you want the money added to the account to be for later in life, not your daily fund money or emergency money.