Life isn't about insurance and
annuities. It's about events that challenge us and
change us, often creating complex needs that can exceed your expertise
or escape your recognition.
Annuities prepare For The Future.
What Are Annuities?
An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums paid. Annuities are most often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live.
Your value in an annuity contract is the premiums paid, less any applicable charges, plus interest credited. The insurance company uses the value to calculate the amount of most of the benefits received from an annuity contract.
When an annuity policy is issued the company sets the first year interest rate. This rate is guaranteed for the first policy year and we refer to it as the current rate. The base rate is that interest rate which the company projects it will pay in the second year and thereafter. This base rate is also referred to, as the "renewal rate" is not guaranteed. In fact some companies pay a "renewal rates" which are less than the originally projected base rate.
Note that the difference between the current rate and the base rate is referred to as the bonus rate.
We use the Current Rate (for the first year) and the Base Rate (for each year thereafter) in our formula to calculate the projected "Account Values."
During the accumulation period of a fixed deferred annuity, your money (less any applicable charges) earns interest at rates set by the insurance company or in a way spelled out in the annuity contract. The company guarantees that it will pay no less than a minimum rate of interest. During the payout period, the amount of each income payment to you is generally set when the payments start and will not change.
Why are Surrender Charges and Withdrawal Charges important to understand?
The surrender charges last for period years and we calculate the projected "Account Value" for the number of years the surrender charges exists. For example; if the surrender charge of the policy lasts seven years, we calculated the projected "Account Value" for only seven year. The reason is the after the surrender charge expires the interest rate is dropped to the contractual guaranteed minimum and the policy values are usually transfer to another annuity. To continue projecting the accumulated value beyond this point is meaningless.
Most annuities allow you to withdrawn interest from your annuity without penalty. Some annuities allow you to withdraw interest with out paying a penalty at the end of the policy year or after 30 days, then as earned.
All most all annuities allow you to withdraw up to 10% of the account value before a surrender charge or withdrawal charge is applied. YOU must know how the Withdrawal or Surrender Charges apply before buying an annuity policy to save yourself unnecessary expenses.