Annuities that make payments in fixed amounts or in amounts that increase by a fixed percentage are called Fixed Annuities. Variable annuities, by contrast, pay amounts that vary according to the investment performance of a specified set of investments, typically bond and equity mutual funds.
A life annuity is a financial contract in the form of an insurance product according to which a seller (issuer) – typically a financial institution such as a life insurance company – makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum or a series of regular payments (regular-payment annuity), prior to the onset of the annuity.
A lifetime annuity gives retirees a fixed income that they will not outlive. This can be a powerful tool to provide additional security during retirement. Fixed Annuities are an investment contract between an annuitant (investor) and an insurance company. The insurance company agrees to pay the annuitant a fixed income for a period of time based upon the value invested in the annuity. For this reason Fixed Annuities are also referred to as fixed income annuities.
There are numerous types of Fixed Annuities, ranging from payments for a set period of time to payments that are dependent on the life span of an individual. The type of the fixed annuity depends entirely on the structure needed for the individual investor.
Some types of Fixed Annuities, such as the equity-indexed annuity, will actually pay a minimum interest rate in market downturns, and then provide a bonus during the market’s up years. This can be a very effective way to protect the principal of your investment, and still participate in market upswings. The stipulation with this type of annuity is that it is subject to caps and/ or participation rates.