Annuities - What They Are, How They Work

 Understanding Life Insurance Annuities

Life insurance annuities are financial tools that offer a reliable way to grow and protect your money while preparing for retirement. Unlike traditional life insurance, which provides a death benefit, annuities are primarily designed to provide income during your lifetime—making sure you don’t outlive your savings.

An annuity is a contract between you and an insurance company. You pay a lump sum or make a series of payments, and in return, the company agrees to pay you income later—either for a set period or for the rest of your life. This makes annuities a popular choice for those looking to secure a stable stream of income after retirement.

Annuities typically come in two phases:

1. Accumulation Phase – This is when you fund the annuity. Your money may grow tax-deferred depending on the type of annuity (fixed, indexed, or variable).
    
2. Distribution Phase – At a future date, the insurer begins making regular payments to you, either monthly, quarterly, or annually.
    

There are several types of annuities:

• Fixed Annuities offer guaranteed interest and predictable payments.
   
• Indexed Annuities are tied to a market index, offering growth potential with protection.
   
• Variable Annuities offer investment choices with higher risk and reward potential.
   

Annuities are particularly helpful in the following situations:

• Retirement Planning: They provide a predictable income stream in retirement, helping to cover living expenses.
   
• Longevity Protection: You can’t outlive your annuity payments if you choose a lifetime payout option.
   
• Tax Deferral: Earnings grow tax-deferred until you start withdrawing, which can help your savings grow faster.
   
• Supplementing Other Income: Annuities can complement Social Security or pension benefits.
   

You might consider an annuity if you:

• Are nearing retirement and concerned about outliving your savings.
   
• Want a portion of your portfolio to provide steady, guaranteed income.
   
• Prefer a conservative, hands-off investment approach.
   
• Have already maxed out other retirement accounts and want additional tax-deferred growth.
   

Annuities aren't one-size-fits-all. They work best when part of a customized plan based on your income needs, risk tolerance, and long-term goals.

In Summary
Life insurance annuities are a powerful tool for creating income you can’t outlive. When used as part of a personalized financial strategy, they help bring peace of mind and security for the years ahead.