In the most basic sense, this is when you give an insurance provider a certain amount of money (called a premium) and you receive payments over a set period of time. Your premium may be made up of a lump sum or periodic payments, depending on which option you choose.
This is a popular option for consumers who are looking for a fixed minimum rate of return. It is very similar to a bank CD, but will usually pay a higher rate. If you are concerned about stock market volatility, this might be a good choice for you. Also, most of these products feature low investment minimums and you won't be taxed until you pull your funds out.Variable
Similar to permanent life insurance policies, variable annuities come with investment options and your income will be based on the performance of these investments. Your gains will not be taxed until withdrawal and the superior growth potential is more likely to beat inflation than with fixed annuities. As with almost any investment, there is a level of risk you need to consider and declines in the market will translate to lower payouts. Also, the fees for variable annuities can add up.Equity-indexed
This type of annuity combines elements of fixed and variable products. There is a guaranteed minimum return but you also have a chance at higher gains if the market performs well. In other words, you can potentially see good gains while ensuring a minimum return if things go south.
A rider is an amendment to your contract that will either expand or limit the benefits or eliminate certain coverage conditions.
Compare the Most Popular Options
Take a minute to consider what you are looking for in a retirement strategy. If the most viable annuity option still leaves a little to be desired, you may be able to fill the gap with a custom rider. Here are the two most popular ones to consider:
An income rider (also known as guaranteed minimum withdrawal benefit or GMWB) is an extremely powerful option that creates a safety net in case the annuity underperforms. For an extra fee, it will offer an income stream for the rest of your life that you can turn on in the future.Death Benefit
This may enhance the guaranteed minimum death benefit (GMDB) left to beneficiaries in the event that the annuity owner dies. The annual cost for this rider can increase the death benefit beyond the annuity's base value on the date of death.
Furthermore, it is one of the only ways possible to get a death benefit in any annuity or insurance product above the premiums and/or accumulated values without having to go through any type of medical underwriting. With most annuities the cost for the GMDB rider is deducted from the accumulated value. Upon payout of the death benefit the growth of on the GMDB amount will be taxed to the beneficiaries as ordinary income.
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