While a lot of people invest in stocks, bonds or mutual funds, some prefer to invest in annuities. Investing in an annuity has advantages as well as many disadvantages. Some say it is safer than investing in stocks and most of the other investments available while some people disagree. Let’s first get to know the annuity definition. An annuity is an insurance company’s product. It is a contract between you and the insurance company. Basically, you give the insurer money and the insurance company will pay out income to you in accordance with the annuity contract you signed. Annuity payments are usually spread over a long period of time. The money you contributed in the annuity may grow tax deferred which means your contribution is not taxed until you withdraw your money.
There are many annuities that you can invest in. Some people like to invest in fixed annuities, some like variable annuities more and some like to invest in an annuity index. As with all investments, there are different levels of risk associated with investing in different types of annuities. The more risk you accept, the more your annuity money will grow providing the market is favorable and your annuity investments are doing good. However, a lot of people invest in annuities because they would like to invest in anything safer than stocks or mutual funds, hope to benefit from tax deferrals and like quite a few of the guarantees that the insurance companies throw in.
The income you are going to receive from your annuity can be in a single, lump sump payment, monthly payments, quarterly payments or yearly payments. You will have a say in how large each payment will be or how long you want to receive payments for. Some people want to receive payments for life but others may choose to have large payments for fewer number of years. While payments are guaranteed to a certain extent, there are many expenses you will have to pay to the insurance company in exchange for the guarantees they give. This is why many people say annuities are too expensive for them.