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Article Index

1. What is an annuity?

2. Common annuity features

3. Immediate and Deferred Annuities

4. Three Types of Annuities

5. Equity Indexed Annuities

6. Income Taxes and Annuities



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InfoHQ Annuity Guide
page 3

Different Kinds of Annuities

1. Simple Annuity - We've already discussed the simple annuity above. It basically has a stated interest rate, there is a fee charge, and like CDs there are penalties for withdrawing your money early. While all companies' simple or regular annuities are basically the same in concept, they can be extremely different. Insurance companies can customize annuity products in many different ways with different features.
A popular feature now is to provide bonus interest in the first year or the annuity. Another common annuity feature is to include different provisions for penalty free withdrawals. So be aware that annuities can be quite different even though they may have the same stated interest rate.

2. Indexed Annuity. An indexed annuity pays interest based on how a stock index performs, like the S&P 500, and does not have a stated interest rate. The purpose of this type of annuity is to allow the investor to earn higher rates of interest when the stock market is performing well.
This brings us to the question of, "What happens to your earnings when the stock market goes down?" You are probably thinking that you will lose money, however you can invest in equity indexed annuities that do not credit losses to your account. At this point, it would probably be a good idea to explain in detail how an index annuity works.

About Indexes

A stock index is just a collection of stocks that are tracked on a daily basis like the Dow Jones Industrial Average (DJIA) or Standard and Poor's 500 (S&P 500).

Keep in mind that when you invest in equity indexed annuities you do not own any stock. Insurance companies own the stock or index equivalents and pay you interest based on their earnings.

3. Other Annuities. Unlike CDs, no two annuities are the same. There are also other types and variations of annuities not discussed in this article.

Remember that insurance companies issue annuities, and insurance companies will customize their products to meet the demands of their customers.

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