What is Immediate Annuities Insurance?
The offered insurance plans are made to provide a consistent source of income in the later years of life. These are the plans that help with a guaranteed monthly income and help the insured live a comfortable life after retirement. They can utilize this income to take care of daily life expenses and spend the retirement life easily. Under these plans, one can buy the desired annuity plan by making a lump sum effect and can start receiving the monthly payout immediately. They can also choose the payment mode from monthly or quarterly to yearly.
Understanding Immediate Annuities
These are a valuable option to plan retirement well in advance so that one will have less to worry about in future. The offered plans not only help receive an uninterrupted income every month to pay for essential expenses but also save for the unplanned expenses. People who have forgotten to buy a retirement plan while they were working can choose this option to ensure a stress-free life after retirement. In case of approaching retirement or being retired, one can choose an immediate annuity and can start receiving the monthly payout from the very next month to manage daily life expenses.
Types of Immediate Annuities
Under the immediate annuities, there are further two types: fixed and variable immediate annuities. One can choose the desired plan depending on their specific requirements.
- Fixed Immediate Annuity
Under the fixed one, the annuitant will receive a fixed monthly income after making a lump sum investment. These plans are great for those who like to live a planned life as they can plan their expenses in advance and manage them in an easier way. Based on the specific needs, they can also choose the frequency of payments such as monthly, quarterly, half-yearly or annually.
- Variable Immediate Annuity
As the name says, these plans provide a variable monthly income to the annuitant. Under this plan, a fixed portion of the amount is invested into the bond and rest into the markets. The annuitant will receive a base payout with the profit share on the investments made and this profit share completely depends on the market performances and may vary accordingly.
Features in Annuities
Immediate annuities come with their own set of features and here we are going to mention some of them:
- The annuity can be bought with a single lump sum amount.
- One can choose to receive a fixed or variable annuity payout.
- One can receive a guaranteed monthly income for life or a specific period to take care of their daily life expenses.
- There are plans that provide an accumulated death benefit to the beneficiary after the demise of the annuitant.
- These plans are tax-deferred and the annuitant doesn’t have to worry about paying taxes on the accumulated amount before they withdraw the same.
- For plan withdrawals, the annuitant may have to pay a surrender charge and while a withdrawal before 59 ½ years will incur 10 percent federal income tax penalty along with the ordinary income taxes on the amount accumulated.
Limits & Restrictions
Like their features, these have their limits and restrictions as well and some of them are mentioned below:
- All the withdrawals are subject to ordinary income taxes.
- A surrender charge is applicable if you choose to withdraw your plan.
- The profit or loss share will fluctuate depending on how your investments perform in the markets.
- A 10 percent federal income tax penalty along with the ordinary income taxes will incur on the amount accumulated if you withdraw before 59 ½ years.
- Excess withdrawals will reduce the future payment and you will receive a smaller monthly income.
- Annuity payment’s guarantee depends on the paying ability of the provider and the government has very little to with the same.
- Under variable annuity, the performances of investments depend on the market fluctuations and the insurance provider isn’t responsible for the same.
- Any kind of investment involves risk and one should be ready for both profits and the loss of money invested.
