31 August 2006
What is Annuity?
Posted by selfprofit under: Annuity .
An annuity is an insurance contract. An annuity contract is created when an individual gives the insurance company money which may grow tax deferred and then can be distributed back to the owner in several ways.
Annuity contracts in the United States are defined by the Internal Revenue Code and regulated by the individual states. Annuities have features of life insurance and investment products. In the US, annuity contracts are only allowed to be sold by insurance companies, although private annuity contracts may be arranged between donors to non-profits to reduce taxes. Insurance companies are regulated by the states, so contracts or options that may be available in some states may not be available in others. However, their tax treatment is dictated by the Internal Revenue Code.
There are two types of annuity contracts:
1) the immediate annuity guarantees payments for a period of years or the lifetime of an individual or couple,
2) the deferred annuity grows tax deferred until such time as the annuity contract is annuitized (converted into an immediate annuity) or cashed in (either in periodic withdrawals or in a lump sum).