An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date, of your principal and earnings.
One of the biggest advantages of an annuity, is that it may offer a tax-deferred growth of earnings, and are generally used to provide income at retirement. Another attractive feature of annuities is that generally, in many states (including Florida) Annuities are “creditor proof”.
There are many different kinds of annuities, however the most common can be classified as either a Fixed Annuity, Equity-Indexed Annuity, SPIA, or SPDA.
In a fixed annuity, your money grows at a fixed interest rate, as set by the insurance company, during the elected length of time. The size of your payments are determined by a variety of factors including the length of your payment period. These periodic payments may last for a definite period, such as 5 years, 10 years, 20 years, or they may last an indefinite period, such as your lifetime or the lifetime of you and your spouse.
An equity-indexed annuity is a special type of annuity. During the accumulation period, when you make either a lump sum payment or a series of payments, the insurance company credits you with a return that is tied to an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.