[DNICE16812]

Can anyone explain annuitties in lay mans terms.

[JudyKayTee]

Can anyone explain annuitties in lay mans terms.

This is straight from the Internet:

"An annuity is a contract between you and an insurance company, under which you make a lump-sum payment or series of payments. In return, the insurer agrees to make periodic payments to you beginning immediately or at some future date. Annuities typically offer tax-deferred growth of earnings and may include a death benefit that will pay your beneficiary a guaranteed minimum amount, such as your total purchase payments.

There are generally two types of annuities—fixed and variable. In a fixed annuity, the insurance company guarantees that you will earn a minimum rate of interest during the time that your account is growing. The insurance company also guarantees that the periodic payments will be a guaranteed amount per dollar in your account. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as your lifetime or the lifetime of you and your spouse.

In a variable annuity, by contrast, you can choose to invest your purchase payments from among a range of different investment options, typically mutual funds. The rate of return on your purchase payments, and the amount of the periodic payments you will eventually receive, will vary depending on the performance of the investment options you have selected.

An equity-indexed annuity is a special type of annuity. During the accumulation period – when you make either a lump sum payment or a series of payments – the insurance company credits you with a return that is based on changes in an equity index, such as the S&P 500 Composite Stock Price Index. The insurance company typically guarantees a minimum return. Guaranteed minimum return rates vary. After the accumulation period, the insurance company will make periodic payments to you under the terms of your contract, unless you choose to receive your contract value in a lump sum.

Variable annuities are securities regulated by the SEC. Fixed annuities are not securities and are not regulated by the SEC. Equity-indexed annuities combine features of traditional insurance products (guaranteed minimum return) and traditional securities (return linked to equity markets). Depending on the mix of features, an equity-indexed annuity may or may not be a security. The typical equity-indexed annuity is not registered with the SEC."

[maxis]

Annunity, is bascially almost like buying CD's but, much much better, you deposit a certain amount of money with the insurance company, for a certain length of time in return the insurance company guarantees you to receive certain money of interest on your deposit, with the possibility of actually earning more. Many insurance companies will also give you what they call a bonus, meaning they will add, an additional 5-10% to you initial deposit and in some cases they will add this bonus each time you add to your account. Another wonderful benefit is that you are also guarantee that none of your funds will ever be lost. Growing tax free

[JudyKayTee]

Annunity, is bascially almost like buying CD's but, much much better, you deposit a certian amount of money with the insurance company, for a certian length of time in return the insurance company guarantees you to receive certian money of interest on your deposit, with the possibility of actually earning more. Many insurance companies will also give you what they call a bonus, meaning they will add, an additional 5-10% to you initial deposit and in some cases they will add this bonus each time you add to your account. Another wonderful benefit is that you are also guarantee that none of your funds will ever be lost. growing tax free

My understanding of annuities - and I only know what a financial advisor said - is that they can be "dangerous" because of high penalties and fees if you must withdraw money, unlike CD's.

I don't know if this is true or not.

[vks64]

Annunity, is bascially almost like buying CD's but, much much better, you deposit a certian amount of money with the insurance company, for a certian length of time in return the insurance company guarantees you to receive certian money of interest on your deposit, with the possibility of actually earning more. Many insurance companies will also give you what they call a bonus, meaning they will add, an additional 5-10% to you initial deposit and in some cases they will add this bonus each time you add to your account. Another wonderful benefit is that you are also guarantee that none of your funds will ever be lost. growing tax free

I don't understand the last line '... growing taxfree' Please explain.

[morgaine300]

Since this is in the homework section, I doubt seriously that the annuities in question are the ones you all are talking about. From a "consumer" perspective, annuities are this one specific investment that insurance companies sell. However, most college courses in accounting or finance are not talking about those specifically, and in fact rarely mention them.

They are generally going to be talking about any series of payments or deposits or withdrawals, and it's going to be in relationship to time value of money. And they mean as opposed to lump sum payments.

But DNICE, this is out of context so it's a little difficult to tell exactly what you are asking about. Since you put it under homework, and because you mentioned "tables" I'm going to go out on a limb and assume this is the kind of annuity I'm referring to. Take the answer as such.

If you're doing time value of money, and working with present and future values, and annuities versus lump sum payments, an annuity is simply ANY series of payments, made in the same dollar amount, at the same time interval. What has become known as an annuity to the general public is actually a form of time value of money, but it's just one limited example.

It's easier to say first what is not an annuity, which is a lump sum. A lump sum means for instance that you stuck $1000 into the bank and let it sit there for 10 years earning interest, but you never add anything to it yourself, nor do you take anything out of it. If you took out a loan of $1500 and had to pay the whole thing back in six months (with interest), you're paying it back in a lump sum all at once.

Versus say a typical car or home loan, where you would be making payments on the loan monthly. That's a series of payments. So paying any type of loan is an annuity, assuming the total payments are equal each time. Putting a payment into a retirement account every year can be an annuity, if you put the same amount in and do it at the same time. Putting a regular payment into any kind of account like that is an annuity, whether it be for retirement or college education or whatever.

It can also be your retirement account when you retire. You have say $500,000 in it and are withdrawing the same amount each month. That too is an annuity.

The requirement, from a time value of money standpoint, for it to be an annuity is that it's a series of payments, deposits, withdrawals, whatever, that are equal in amount and are done at equal time intervals. You mentioned tables. Assuming you're referring to the present and future value tables, you can only use the annuity tables in these circumstances.

Typical homework applications are the above mentioned stuff (retirement accounts, loans), bonds, and net present values.

Since I only know of two uses of the term, the kind that insurance companies sell and the thing I'm talking about, somewhere hopefully this question got answered. But if you're needing something else, or you don't understand how to apply something, you're going to have to get a lot more specific.

[morgaine300]

Annunity, is bascially almost like buying CD's but, much much better, you deposit a certian amount of money with the insurance company, for a certian length of time in return the insurance company guarantees you to receive certian money of interest on your deposit, with the possibility of actually earning more. Many insurance companies will also give you what they call a bonus, meaning they will add, an additional 5-10% to you initial deposit and in some cases they will add this bonus each time you add to your account. Another wonderful benefit is that you are also guarantee that none of your funds will ever be lost. growing tax free

Do you sell these things or something? Sounds much like an advertisement.

JudyKay was correct that annuities can be dangerous.

Those of you who already know all about annuities I'm sure would ignore this. For those of you who don't, please, please do ignore this post making annuities sound like the most auspicious, wonderful, safe things on the face of the earth. Don't touch them unless you learn what they are, the kinds that exist and what is and is not safe. And I'd suggest keeping that subject to the investment forum.

I know someone who is forced to sell these things at her work. She wants to get out of the business cause she's tired of lying to people.