Though the process of an annuity is complex, one significant benefit is that it allows your money to grow on a tax-deferred basis. But if you are going to invest in an annuity, it is important that you understand the way it works. Here are some of the things you should know about an annuity.
How do annuities work?
Annuities are a long-term investment that is issued by insurance companies created to protect you from the risk of outlasting your income. You pay the annuity company premiums to carry this risk. The premiums can be a series of payments or a single lump sum, depending on the type of annuity. Annuity payments are very easy to handle. And they can be structured to activate payment for a specific number of years, for a lifetime, or a combination of both guaranteed specific payout with lifetime income.
Payments can start immediately, or you can postpone it for years. The payments can either be monthly, quarterly, annual, and sometimes lump sum. All protections and guarantees are subjected to the claims paying ability of the issuing insurance company.
Can't I just cancel an annuity?
An annuity is a contract, so you can’t just decide to back out of your contract without facing surrender charges. While the charges can vary, they usually start at 7 percent during the first years of the contract and drop by 1 percent each year during the surrender period, which can last 6-8 years. However, there are exceptions. Annuity contracts usually allow you to withdraw about 10 percent of your account value each year without incurring a surrender charge.
Additionally, the charge may not apply under certain conditions, such as if the contract owner is terminally ill, dies, or confined to a long-term care facility.
Why should I sell my annuity payments?
Whether you are thinking of paying student loans, starting a small business, or buying a house, using a part of your future annuity payments can help you get back in control. When you face a severe financial need, it can be better to access your annuity than to put your life on hold. So, this takes us to the next question – how can I access my annuity early?
Can I access my annuity early?
You have a few options to access your money before the end of your contract. However, any move you make will end up costing you in some combination of fees and taxes. Your best options depend on the structure of your contract and how much you need. Some of the options include making a full surrender, requesting partial surrender, going through contract exchange, and taking annuity payment.
What We Pay More Funding can do for you
Most times, unlike with lottery prizes or structured settlement, you can sell your annuity payment without going to court. By selling your annuity payments, you exchange the value of a long-term future payment plan with a lump sum paid in full. For immediate help or more information about annuity payment, contact We Pay More Funding today.can I access my annuity early
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