What are Fixed Annuities?
Fixed annuities provide a guaranteed minimum interest rate and are considered savings instruments. Insurance companies issue all fixed annuities. They are not government or bank obligations, so naturally they are not FDIC insured. However, fixed annuities have an extraordinary record of safety and offer other benefits.
Prior to the late 1970s annuities were primarily used as a retirement income vehicle. The textbook definition of an annuity in those days was “A periodic income for a specified length of time, for life, or a combination of the two.” Today, however, annuities can mean much more.
Today, most people do not convert the money they have in their annuity into a guaranteed income stream (called annuitization); instead, they treat the annuity value they have accumulated as any other asset. Anecdotal evidence suggests that almost all of these accumulated annuity values are passed onto the heirs in a big lump sum and not turned into an income stream by the buyers of the annuities. The consensus is that less than 2% of deferred annuities are annuitized.
There Are Two Main Types of Fixed Annuities:
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