Annuity - a what?
An annuity is a contract that provides income for a specified period of years or for life. An annuity protects a person against outliving his/her money. It is not life insurance; it'a vehicle for the accumulation of money and the liquidation of an estate.
Accumulation Period (Pay-in-period) is a period of time over which the annuitant makes payments (premiums) into an annuity; period of time during which the payments earn interest (tax deferred) and grow.
Annuity Period (Annuitization period, liquidation period, pay-out period) is the time over which the sum that has been accumulated during the accumulation period is converted into a stream of income payments to the annuitant; this period may last for the lifetime of the annuitant or for a shorter specified period.
Owner is person who purchases the contract but does not have to be the one who receives benefits; owner has all the rights such as naming the beneficiary and surrendering the annuity.
Annuitant is the person who receives benefits or payments from the annuity and for whom the annuity is written; his/her life expectancy is taken into consideration to determine payments and pay-out period.
If annuitant dies before annuitization (pay-out period), beneficiary will receive the amount paid into the plan or cash value, whichever is greater.
Beneficiary is the person who receives benefits from annuity if the annuitant dies during the accumulation period.
Two Types of Safe Money Alternatives - Fixed-Indexed Annuity and Fixed Interest Rate Annuity
Fixed-Indexed Annuity - contract between owner and insurance company in which the interest earned is linked to an equity or bond index. Common indexes are S&P 500 Index, Dow Jones Industrial Average (DJIA), Lehman US Aggregate, and US Treasury Index.
Fixed Interest Rate Annuity - contract between owner and insurance company in which annuity earns a competitive interest rate, which is declared by a board of directors and guaranteed for a specified period of time.