Invest in Your Family's Future: Life Insurance Annuities

You may have found a health insurance policy that will help you live a long and prosperous life. But no matter how good you feel in later life, you're going to want to retire and enjoy those years. It's imperative to plan ahead so that you have the means to retire with financial stability. Even before retirement age, you may want an additional savings fund in case of an emergency expense. For either scenario, life insurance annuities are a great place to start. The additional advantage of this kind of investment is that you can name a beneficiary who will receive the payments if you die. Acquaint yourself with these funds and you'll be ready to find the investment vehicle that provides the returns you need.

Defining Annuities

There are many forms of annuities, and even more providers, but essentially they operate as a contract between you and the insurer. You donate money into the annuity, which is like an investment fund, and then you eventually get returns-either an accumulated amount, a set monthly payment, or some combination. If you want life insurance annuities, then you'll designate a beneficiary who will receive the funds. The main reason many people prefer annuities is the tax benefit-the money you put into your annuity can accrue at a higher rate because it won't be taxed.

How Life Insurance Annuities Operate

In the broad view of annuities, there are two basic properties to understand:

  • Deferred or Immediate Payments: You may start receiving regular payments immediately, or state a date in the contract on which the benefits will begin. For life insurance annuities, payments are likely deferred to death of the policy holder.

  • Fixed or Variable Returns: If you choose fixed, you'll receive a guaranteed return, and your funds will be invested in a low-risk fund. For the life insurance component, you won't be able to withdraw any money for a specified term, but you can choose to have your beneficiaries receive benefits for a fixed term, such as ten years. Variable returns have no such guarantee. They are subject to market fluctuation, but may provide much higher returns than the fixed option.

Distributing Benefits from Life Insurance Annuities

You will first name an annuitant and a beneficiary, who may or may not be the same person(s). The annuitant may be you. Insurers determine future payments based upon the life expectancy of the annuitant, so you should consider setting payments for your beneficiary based upon a longer life expectancy if you want regular payments in the future. Your life insurance version will include a guaranteed death benefit, which means your beneficiary will receive the amount invested, minus a withdrawal fee.

Choosing the Right Annuity

A lot depends upon your willingness to deal with market risk. Are you more comfortable with fixed payments, or do you want to take the chance that your beneficiary might receive a much greater payment? You'll also need to review withdrawal options and fees, in the case that you end up using this investment for retirement rather than life insurance. When you shop around, take into account both the interest rates and contribution amounts, but also take a little time to review the insurer's history if you can. Usually you can find some information on the performance history of a suggested investment fund. Arm yourself with information, and then make a wise and cost-effective choice.