Annuities Are Better Than Other Investments

Saving and investments are necessary to safeguard our future from unexpected risks as well as to cushion ourselves from financial shocks. But at the same time, it is necessary to display an acute sense of financial prudence, especially, when it boils down to choosing investment tools. Today’s investor has many investment options at his disposal. However, if you are looking for an investment that guarantees you an assured income as well as protects your principal amount, then annuity should be your numero uno choice.

Annuity is a contract between an annuitant and an insurance company, wherein the company guarantees to pay the annuitant a certain sum of money. In return, the annuitant is required to pay a single premium/premiums.

But why are annuities so popular amongst investors? After all, there are many options such as mutual funds, stocks; bonds that offer far more attractive interest rates than annuities.

Annuities offer many advantages over other investment options. And hence, this makes annuities a better proposition than other investment tools. Let’s look at the benefits offered by annuities:

Tax Deferred: This is one of the biggest advantage annuities have over other forms of investment such as stocks or mutual funds. Tax deference implies that tax is not applicable on the interest received by your annuity policy during the accumulation stage. This means that your investment remains untouched by taxes and it experiences an unhindered growth. Other investments like CDs etc. are taxed on a yearly basis, which adversely affects the gains made by you.
Tax at the time of withdrawal: In case of annuities, the annuitant is expected to pay taxes as and when he starts receiving payments from it. The gains, in this case, are taxed as ordinary income. However, in most cases, the annuitant starts receiving the payment upon retirement by which time he has already entered a lower tax bracket.
Safety: Annuities are currently one of the safest options available to the investors. Annuity can be issued only by a qualified legal reserve life insurance company. These companies are regulated by state as well as federal laws. For instance, the federal law stipulates that insurance companies must hold reserves that are equal to the withdrawal value (principal plus interest less early withdrawal fees, if any) of every annuitant’s policy. Similarly, the state law requires the maintenance of surplus capital as well as contributions to state guaranty funds to provide additional security.
Guaranteed rate of returns. Annuities also allow the investor to receive a fixed rate of interest. For instance, fixed annuities allow you to receive a fixed sum of money. Similarly, even in case of equity-indexed annuities, the investor is guaranteed a minimum rate of return.
Flexibility: Compared to other forms of investment, annuities are quite flexible. For instance, the annuitant can choose to receive the payment on a monthly, quarterly or on an annual basis. The annuitant can also pay the premium in installments or in a lump sum. He can also decide as to whether he would like to receive payments for a specific period or for entire life.
Protection: Most US states hold annuities as protected assets. And hence, they cannot be included in bankruptcy judgment or seized by the courts. This feature is not available in other forms of investment such as CDs or investments made in a stock market.

Annuities offer many advantages over other form of investments. So, if you are looking for a steady income coupled with a safety cover over your principal amount, then nothing can beat annuities.

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