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Single premium annuities are contracts made with insurance firms in which the buyer pays a lump sum, also known as the premium, to the insurer in exchange for the company’s promise to provide an income stream at a guaranteed interest rate for a specific period of time, or for the lifetime of the buyer. Immediate annuities and fixed-rate annuities are funded as single premium annuities.
Steps to Take When Investing in Single Premium Annuities:
Before purchasing a single premium annuity, buyers should consult with investment professionals or insurance agents that they trust. These experts will be able to steer the buyer to the products best suited to their individual needs.
Single premium annuities are a good choice if buyers have an amount of money from savings or a retirement account, and they know that they have a need for income over a certain amount of time. The guaranteed interest rate that will apply to the designated time period is one of the major advantages of the single premium annuity. This rate will not change over the contracted period, and it is usually higher than rates available in other kinds of savings accounts.
Single premium annuities are also a good choice for investors who want to avoid as much risk as possible, such as those close to retirement age who would not be able to absorb a large investment loss. Investors should also check the financial condition of any insurance company they may potentially do business with. An insurer must have sufficient monetary reserves to make good on the promised payments from any single premium annuities they issue. Investors must decide how they want to receive their annuity payments as well. Payments can be made on a monthly, quarterly, or annual basis. They may also be received twice a year, depending on the specific needs of the plan’s owner.
Try to set up a single premium annuity that offers an installment refund. This type of annuity will pay the unused portion of the lump-sum premium (money that you initially paid in) in the event of your death.
Additional considerations:
Single premium annuities can be set up for individuals in close relationships, such as husband and wife, or parent and child. Investors can specify the duration of the payout period, choosing from two or 20 years, or even longer. The annuities can be used to pay off bills that require a set payment each month, such as medical bills or car payments.
By: Steven Hart