Kinds of Annuities

There are several ways to categorize
annuities, and any one annuity may fit into
several categories.
Immediate Annuities
With an immediate annuity, you pay a single
premium and immediately start receiving
payments at the end of each payment period,
which is usually monthly or annually.
Deferred Annuities
With a deferred annuity, you pay one or
more premiums over what is often called the
accumulation period. The premiums you pay
and the interest credited to the premiums goes
into a fund called an accumulation fund. There
may be a minimum guaranteed interest rate at
which your money will accumulate during the
accumulation period.
The annuity payments you will receive begin at
a future point in time called the maturity date.
You will receive payments during a time period
called the payout period or annuitization phase.
You do not pay income taxes on the interest
earned during the accumulation period unless
you draw on its cash value. These taxes are
deferred until the payout period.
Fixed Annuities
A fixed annuity provides fixed-dollar income
payments backed by the guarantees in the
contract. You cannot lose your investment
once your income payments begin. The
amount of those payments will not change.
With fixed annuities, the company bears the
investment risk.
Equity Indexed Annuities
These are a form of annuity, either immediate
or deferred, that earns interest or provides
benefits that are linked to an external equity
index, such as Standard and Poor’s 500
Composite Stock Price Index. When you
purchase an equity-indexed annuity, you own
an insurance contract—not shares of any stock
or index.