Buying Insurance

Lesson 5: Annuities

Immediate Annuities and Other Options

Immediate annuities differ from deferred annuities in that there is no initial accumulation period. Immediate annuities require a lump sum deposit at the outset and payments begin usually within 30 days. Immediate annuities have the same payout options as deferred annuities. Immediate annuities can be an attractive option when a large sum of money is available, there is a need for a steady guaranteed income stream, and the intended recipient is either unable, or cannot be counted on, to handle large sums of money wisely. Immediate annuities can be useful when mentally handicapped or physically disabled individuals are the intended recipients, or when the care of minor children is involved.

So what is the big deal about annuities you ask? Why not invest money in the stock market and use those funds for retirement or whatever? Or why not just put money into certificates of deposit? The answer lies in the word "guaranteed". No other financial product guarantees to deliver a fixed amount of money over a fixed period of time. Your stock market securities may pay you a big check this month and next to nothing next month. You may wake up in the morning with a stock market account worth six figures and find it reduced to half that amount by dinner time. It has happened before and not just once. And no certificate of deposit guarantees any kind of income stream. For many people the comfort and security of knowing just when and how much money they will receive each month is critical.

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