Annuity is an amount of money paid in equal installments to a person who has entered into annuity agreement with a life insurance company, at regular intervals, for example, monthly, quarterly, or annually in exchange for premium paid in a lump sum or installments. This is a PAYG system of various participants who transfer their accumulated funds to an insurance company that pays pensions through risk redistribution. The main advantage of retirement annuity providing there are no specific terms in the contract, is the lifelong payments. That is, the insurance company, which the contract is concluded with, takes the risk of paying the pension for life, but in the event of client’s death, it keeps his funds.
Dana Anspach, the President and Founder of Sensible Money, has broken down annuities into four main categories: immediate, fixed, indexed, and variable. Some involve a lump-sum payment and systematic payments from the insurance company, which are made the next month after the contract is concluded. Fixed annuities are the contracts with fixed amounts of payments. Such payments are not indexed,” explains Dana Anspach.
The financial expert specifies that insurance payments in accordance with the retirement annuity agreement will be sent to the recipient's account for life. The insurance company is obliged to support the client for life. Even if their client lives longer than the average life expectancy, they will still continue to receive the same pension for the rest of their lives.
“Retirees can choose for themselves where the conditions are best for them. This requires a certain amount of pension savings,” concludes the Sensible Money president and founder.
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