There are a number of different financial terms that we hear on a frequent basis and simply ignore the fact that we don’t know what they are. The fixed annuity is often one of these types of terms. The fixed annuity is a commonly misunderstood insurance product that can receive a fair amount of bad press. The product is not in and of itself a difficult product to grasp, but it can be abused by overzealous insurance salesmen.
The fixed annuity is simply a type of insurance product. It is designed to provide a fixed dollar income over a specified period of time. There are numerous types of annuities, and so pinpointing exact features is completely dependent upon the particular variety you are referring to.
The period in which payments are made to the annuity’s beneficiary is determined by the contract. In the case of a life annuity, the payments will continue for the life of the annuitant, or simply the person the contracts life is based on. Other annuity contracts are designed to provide income for a set number or years. 10, 20, or even 30 year contracts are not uncommon.
As stated earlier, the fixed portion of the contract is in reference to the payment amount. Another common name for fixed annuities is fixed income annuities. These types of annuities provide the beneficiary a predetermined fixed income over the contract life.
Because fixed annuities provide this guaranteed payment, they are considered a very safe investment vehicle. Classified as such, they are often used for retirement planning purposes. The fixed annuity ensures that the retiree has a set income for the rest of their life. This allows them to not outlive their income, or at least as long as their dollar holds its value.
The fixed annuity can be a powerful planning tool if used properly. Make sure that you understand this insurance product before you purchase one, they can be difficult to get your money out if you change your mind.