There is quite a bit of confusion about annuities. Many people fail to understand what they are, and because of there fear they never looking into this investment idea as a possible option. This is for good reason, the details can become rather complicated for those who do not know much about the financial world. The idea of having a practically guaranteed return on an investment sounds great for many people, and for some it is, but it is important that they are fully understood. Like any other major financial decision it is essential to have all of the details before one invest a significant amount of money.
So what is an annuity? An annuity is an investment of money that is then paid back yearly over the course of an individuals life. This is guaranteed to be paid every year for either a set period or till the individual investing deceases. This money is paid back with interest, and so the investor is guaranteed to get more money that they put in. The one offer the annuity service makes money by investing this money and earning more on it than they pay in interest. This is a risk for them, but since they have such a large amount of money they are dealing with from many different peoples annuities they are able to spread out the money and make a significant amount.
These investment plans are not fool proof, nor are they right for everyone. Everyone should seek to have a balanced and spread out portfolio of investments. Having a single source of guaranteed return on investment is something that everyone should have, but not all money should be tied up in such investments. The interest garnered on an annuity plan is not as high as if the same money was invested wisely in a different way. It is a secure thing for the most part, but the money could be lost if the company goes out of business. This would mean the almost total loss of the money. The way most of these programs are written states that if the individual dies the money no longer has to be paid back. If a premature death was to happen this money would not be passed on as an inheritance, but would instead be lost.
An annuities program is great for many people who want to have a conservative but guaranteed investment. This type of program can give security to people who otherwise would not feel financially secure or stable. The lack of high value investment in this method does not deter everyone nor should it. this is the perfect investment for people looking to earn a little on their money without taking much risk.
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