Question

I need to write a 8-10 page paper about annuities for a financial mathematics class. Since the length is limited, what aspects should I go over and how should I outline it? I struggled with this subject and am having a very difficult time researching it. Please help! Also will need to cite sources, so I need tips on how to research this subject and find good sources. Thank you!

Answer 1

Introduction-: An annuity is a series of payments made at equal intervals like; annuities are regular deposits to a saving account monthly home mortgage payments, monthly insurance payments and pension payments.

Annuities can be classified by the frequency of payment dates.

It is kind of lifetime income payment can last for as long as you live- or even longer because the payments are based on your life expectancy.

Definition- An annuity is a contract between you and an insurance company to cover specific goals, such as principal protection, lifetime income and long- term care costs.

Why buy annuity- Because it provides guaranteed income for the rest of life no matter how long we live . It is a kind of retirement plan. Since it provides fixed income ,so we can opt for aggressive investment plan for further income.

How does an annuity work- It works by transferring risk from the owner called the annuitant to the insurance company

You pay the annuity premium to company to bear the risk. It can be a single lump sum or a series of payment depending on the type of annuity. The premium paying period is known as the accumulation phase.

There is a great flexibility in how annuity payments are handled. It can be structured to trigger payments for a fixed number of years to you or your heirs, for your lifetime, until you and your spouse have passed away.

Different types of annuities- Two types of annuities-deferred and immediate

Deferred annuities provide a stream of income later, while immediate annuities provide income now. Within the deferred and immediate categories , there are fixed and variable annuities

An immediate annuity begins paying income (almost) immediately. You make a single lump sum payment to the insurance company , and it begins paying you income one annuity period after purchase , which can be 30 days to one year later.

Because payments starts so soon, therefore it is popular among retirees.

Deferred annuities provide tax- advantages saving and lifetime income. In this case you receive payment years or decades in future.

A fixed annuity for principal protection- It pays a guaranteed minimum rate of return and provide a fixed series of payments under conditions determined when you buy the annuity.

During the accumulation phase, the insurance company invests premium in high quality fixed income Investments like bond, since, rate of return is guaranteed , insurance company bears all Investments risk.

Annuities may have withdrawal penalties- Deferred annuities have surrender charges, if you withdraw your money early. Surrender periods vary from 2 to 10 or more and the corresponding charges typically decline with time .

Annuities are tax- deferred- It means you don't pay taxes on the money while it is in the annuity . Like 401(k) or IRA, you only pay taxes on the money when you withdraw it.

An annuity is a good option because it can provide regular payments, tax benefits and potential death benefit.

The top rate for a 10 year MYGA is 4.30%,4.19% for 7 year MYGA, 4.10%for a 5year and 3.10% for a 3year MYGA

Sources- Wikipedia

money.usenews.com

Smartasset.com

Forbes.com