Fixed Annuity
Fixed annuities are insurance contracts that offer the annuitant- the person who owns the annuity- a set amount of income paid at regular intervals until a period has ended or event has occurred. Fixed annuities can be bought from insurance companies or financial institutions with a lump-sum payment or they can be paid for on a periodic basis while the annuitant is working. The money that is invested in the annuity is guaranteed to earn a fixed rate of return throughout the accumulation phase of the annuity. During the annuitization phase the money invested less payouts will continue to grow at this fixed rate. In some cases, however, annuitants don't live long enough to claim the full amount of their annuities. When this happens, they end up passing on the remainder of their annuity savings to the company that sold them the annuity. But whether the annuitant chooses to try to avoid this depends on the kind of policy they choose.
The two main types of fixed annuities are life annuities and term certain annuities. Life annuities pay a predetermined amount each period until the death of the annuitant, and term certain annuities pay a predetermined amount each period (usually monthly) until the annuity product expires, which may very well be before the death of the annuitant.
A major distinction between fixed and variable annuities is that with variable annuities your funds are held separately from the insurance company, where with a fixed annuity your assets are part of the general accounts of the insurer, and are subject to the claims-paying ability of the issuing company. This is why it is so important to understand the financial strength of the issuing insurance company before you buy a fixed annuity. In Florida many of the retired population look upon these very favorably, as they tend to offer higher rates than CD’s.
