Annuities are contracts in which the recipient reels in regular, standardized payments on an ongoing basis. Annuities are deals made between investors and insurance providers. As a matter of fact, annuities can only be provided by insurance companies despite the fact that they’re not actually true-blue insurance products.
Like most things in life, there are several varieties of annuities – here are a few of the most popular choices, along with their key characteristics.
Pension plans and individual retirement accounts (IRAs) are similar to annuities in that they pay out small disbursements to recipients in their retirement years. Deferred annuities are similar to pension plans and IRAs because all three of them take time after contributing money to them in order to be paid out.
People who anticipate needing more money in their latest years of living are often served well by choosing deferred annuities.
Take, for example, the fact that you’ll receive pension plan payments for 15 years after you retire. It would be a good idea to purchase a deferred annuity that starts paying out after these 15 years are up.
As their name implies, immediate annuities start paying out as soon as you buy them. Immediate annuities spread income out over a multiple-year period to make sure you’ll always receive regular income.
Managing investments over time can prove difficult for people in declining mental health. Rather than potentially subjecting one’s self to poor investment management in their golden years, which can result in actually losing money, purchasing an immediate annuity is often a safe way to guarantee income over the next however-many years.
Structured settlements result from personal injury tort claims, or those in which claimants seek out compensation for the harm or loss they’ve suffered as a result of getting physically injured.
These actually aren’t annuities, per se, though they essentially act in the same manner as annuities. Structured settlements are split into weekly, biweekly, monthly, quarterly, or annual payments, just like annuities.
The distinguishing factor between the two is that annuities are investment vehicles, whereas structured settlements are simply tools to deliver payment to claimants who have experienced personal injuries.
Structured settlements don’t garner interest and aren’t held in the form of investments. Rather, they’re just a way in which a sum of money is paid out.