An overview of annuities

Get a quick overview of the four types of annuities.

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Akweli Parker: I want to give this first one to you, Danielle. It comes from Nancy in The Villages, Florida, and asks for us to please explain the various types of annuities.

Danielle Corey: It’s a great place to start, Akweli, because there are different types of annuities. So setting that as a baseline up front is a great idea. The different types of annuities all have one thing in common, and it’s they’re all a contract between an insurance company and a client. But they may have very different purposes that could range from accumulation and growth to a stream of income.

So there are four main types that I’ll cover briefly, and then we’ll go into those in more depth throughout the rest of the webcast. First is income annuities. So you can think of these as sort of like a personal pension that people can purchase. It provides a stream of income, either starting immediately or could be deferred for several years, and the income could continue for someone’s life and after a set period of time.

The second type is a variable annuity, and this is a type of investment option that allows folks to have additional tax-deferred savings primarily, so very different than income annuities. In this instance a client would be selecting from different sub-portfolios, choosing investments, and then the value of their variable annuity contract is going to be based on the investment performance of those sub-portfolios.

Now folks may be able to purchase riders or additional benefits on that variable annuity that allows for some sorts of guaranteed benefits on top of the variable performance. But that’s the variable annuity in general.

The third type is a fixed deferred annuity, and folks can think of this as a fixed interest investment from the insurance company, kind of similar to a CD, only it’s backed by the insurance company as opposed to the FDIC.

And the final type is an indexed annuity. This type of annuity provides market-linked growth but also protects for the downside.

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