What is an annuity contract? Three things you should know.
A firm grasp of annuity contracts will help you determine if they’re right for your future financial needs.
What’s an annuity contract? In the simplest terms, an annuity is a financial contract between a person and an insurance company that provides retirement income or death benefits. Thinking of investing in one? Read on to learn about some of an annuity contract’s benefits (and risks).
The different types of annuity contracts.
Fixed, indexed, and variable are the basic types of annuities, and each has a unique risk-benefit ratio.
- Fixed annuities provide a minimum rate of interest and a fixed amount of periodic payments. These are simple and low risk.
- Indexed annuities combine features of both securities and insurance products. Income payments are tied to a stock index, and they perform well if the stock market is strong.
- A variable annuity is a tax-deferred retirement vehicle that allows you to customize your investment in such things as mutual funds.
The benefits and risks of annuities.
One big benefit provided by an annuity contract is that there is no annual contribution limit — meaning you can put away large amounts of money and defer paying taxes. The counterbalancing factor is that when you do start taking distributions, they’re taxed as ordinary income.
All investments include some level of risk, so the financial strength of the insurance company issuing the annuity should definitely be considered before you purchase a contract.
How to avoid fraud with annuity contracts.
Because an annuity can have significant financial implications, be sure to use a secure, legally binding electronic signature software to avoid fraud. Some common and persuasive techniques used by fraudsters to sell annuities can include:
- Promoting guaranteed returns.
- Applying pressure to make a decision and send money immediately.
- Describing an investment that sounds too good to be true.
As with any investment, seek the guidance of a knowledgeable expert or reputable broker. If you’re looking for the best in modern authentication tools and e-signature software, explore what more you can do with Acrobat Sign.
