What are the different types of annuities? The term annuity is a term used to explain a continuing payment of a fixed amount. There are many different types of annuities, depending on the payout timing, investment type, liquidity options, and many others.
The types of annuities that are according to payout timing can be immediate or deferred. The immediate types of annuities happen when investor gets payments as soon as they have invested. These are the types of annuities that should be gotten by investors that need to get income as soon as possible. Also, immediate annuity gives you the freedom to choose the payment scheme. You can choose a certain span of time as you can also choose to send payments until the annuity is paid off.
The deferred types of annuities, as the name implies, are types of annuities where you will receive the payments in the future. Most of the time, the time of payments are at retirement. The good thing about the deferred types of annuities is that the funds are able to grow while being tax deferred. Studies show that deferred types of annuities are the ones that make most of the annuity cases in the US.
According to investment type, there are also two main types of annuities, fixed and variable. The fixed annuities happen when the investor invested in high grade bonds of corporations or maybe in government securities. The investors are guaranteed a fixed amount of returns basing on a period of time they have selected. Under the fixed annuities, we have the GRA and the MVA. The GRA stands for guaranteed return annuities while the MVA stands for market value adjustment annuities.
Variable annuities, on the other hand, are types of annuities wherein you invest from portfolios or sub accounts. These subaccounts are mostly tied with market performance. Therefore, when the market is successful, then you can expect good returns as well. The variable annuities have a benefit called a GRIB. This stands for guaranteed retirement income benefit. This is one of the most competitive of the many living benefit annuities. There is also what we call guaranteed lifetime withdrawal benefit annuities. These are annuities wherein the insurance company gives you the guarantees of payments that can be quarterly, monthly, annual or just regular. Even when your account goes to zero, you will still be able to receive the payments.
The third classifications of annuities are the annuities basing on liquidity options. There are annuities that have withdrawal penalties. These are called no surrender annuities. These are annuities that will allow you to be able to withdraw your accrued interest without any penalties. However, there will be a surrender charge that will be charged to you. They are penalties that are set when making early withdrawal to your annuities. There are, however, annuities that do not have withdrawal penalties. These are the annuities that are perfect for investors that need impromptu access to their money. These are the annuities that do not have surrender charges and they have no extra penalties for early withdrawal.