In order to invest wisely, you need to educate yourself in regard to the different financial products that are available to you. Investing the money you have worked hard to earn in something that you do not fully understand is not a good idea. While you will have to put some trust in your advisor in order to fully understand all the outs and ins of a particular product, the basics should be yours to decide. You need to have a minimum understanding of how financial products work and you should be able to explain the product in a basic way. Now it is time to attempt to have fixed annuities explained.
Like most financial products, a fixed annuity is a contract between an offering company, usually an insurance company, and you. You agree to pay a certain amount in premiums over a certain period of time and the insurance company gives you either a stream of income or a lump-sum. Usually, a payment stream is deferred until later so that the insurance company can use that money for their own investments but this is not always true. The investor benefits because the insurance company, as per the agreement, will pay the investor with the account’s fixed rate of return and this will give the owner a stream of income that is reliable.
Fixed annuities are a great way to get funding for different retirement needs because of the dependable income streams and deferred payments, and they are often used for retirement planning. A fixed annuity can be used to provide fixed income for an individual or they can fund insurance premiums. Either way, they are relatively safe as an investment since they are backed fully by an insurance company.
While the contract for a fixed annuity is conceptually straightforward, the standard plan has many variations that can be used. In order to fit the unique situation that you have, you have to determine the correct combination of features, payments, types, and addendums that will work for you.
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