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What Is an Annuity?

An annuity is money that is earned by a person from an investment that will be paid to him after some time. Most of the time annuity is a part of a pension plan in which retirees receive an amount of money which their investment earned for many years. An annuity allows them to receive a fix amount of money may it be quarterly, semiannually or annually when they stop working. This is a good source of money for retirees so that they will have something to look forward to when they reach their retiring age.

Most companies incorporate the annuity in their programs for their workers. So through the years their workers can build up on it and when the time comes they need the money they will have something. It is a good preparation for retirement because when one person retires, there should be a steady source of income that will help them in their daily needs. Some companies without annuity are encouraged by their workers to set it up so that they will have something in the future.

An annuity is different from life insurance because there is no need for physical check-ups and medical history. All it needs is for a person to be capable of paying the terms. Paying it could be incorporated on monthly deduction for a worker to set aside money to fund it. It all depends on the discussion with financial firms on what mode of payment will be applied. There are two kinds of annuity, the fixed type and the variable type. The fixed type will give a fix amount of money that the financial firm guaranteed to return after some time. No matter how the market performs, the amount that a person can get is fixed. In the variable type, the amount of money to be received will depend on how the market performs. If there are improvements in the market by the time you are scheduled to be paid then that amount will increase but it may decrease if the market falls.

An annuity usually ends when the person who owns it dies. It is not often that it can be passed to dependents. You must inquire about this rule on the financial company that you are talking with to be clear about this matter. You can choose whatever you like in their offers. Most financial companies don't offer it to continue paying when the annuitant dies.

An annuity is a great way to help the retirees during their retiring years. It will give a steady flow of money even if they are not working and enjoying their retiring years. It follows regulations so that there will be no abuse to the annuitants. During those years the money that they will get will be very important for them so they must be able to receive it. It is important for people who are working today to inquire about it. An annuity is a good investment option and will be very useful when you retire and stop working.