Annuity is a financial insurance based contract between an individual and an insurance company wherein the insurance company pays some amount given the insured deposits certain fixed amount in a lump sum or on a quarterly / monthly basis.

There are various types of annuities. An individual can choose an annuity scheme depending upon his areas of interest and requirement. One such type of annuity that might interest an individual is Fixed Annuity.

Understanding Fixed Annuity

Fixed Annuity promises to pay you fixed income after a specific time period chosen by you. The benefit is received monthly. The return generated on your deposits is also at a pre-determined rate. The tax savings deferral benefits associated with other forms of annuities is applicable to a Fixed Annuity scheme too.

For people who are risk averse or for those nearing retirement, fixed annuity offers a sound form of investment and guaranteed returns. The guaranteed fixed returns offered are thus called as annuitants. Annuitants are paid out till the defined time period. The rate of return on this annuity scheme is thus lower than other forms.

Different Types of Fixed Annuities

Fixed Annuities come in two different forms: Life Annuities and Term Certain Annuities.

1. Life Annuities

A life annuity provides its owner or the insured a certain fixed amount until his death. Again, life annuities differ if the annuitant becomes critically ill and dies at an early age. If the deposit term life of an annuity is long, the amount to be deposited reduces. IF the life expectancy of the insured is lower, the amount payment increases and vice versa.

The annuity contract with more insurance components pays higher returns. However, the

The cost of a life annuity includes the money invested in the contract and the premium that is paid for any added insurance components. Costs rise as more components are included.

Different Types of Life Annuities

• Straight life annuity: Here the income flow is maintained till the death of the annuitant. It is the cheapest type of life annuity but excludes paying out any amount to the survivors of annuitant.
• Substandard-health annuity: For people facing significant health problems, this annuity is the best solution. Although a little expensive, the payouts in this annuity scheme are phased over the life of the annuitant and the payment amount is higher than other Annuity schemes
• Guaranteed Term Life Annuity: The annuitant can name a survivor who can receive the annuity benefit on the death of the annuitant. The beneficiary can receive lump sum amount if the annuitant dies early.
• Joint life Annuity: The spouse of annuitant continues to receive fixed amount even after the death of the annuitant.

2. Term Certain Annuities

These annuities pay fix amount to the annuitant over a defined term period. In case the annuitant meets casualty before the end of term period, the balance amount stays with the insurance company. For people looking at specific retirement income, this is a good option.

Thus, fixed annuities offer a certain investment income, especially for the retired and those suffering from physical ailments and casualties.