The Benefits of a Fixed Annuity Plan

A fixed annuity plan is an annuity that guarantees regular payments whether monthly, quarterly, semi-annually or annually.  If you happen to have a huge amount of money on hand, you may opt to entrust this to an annuity issuer who then provides you with a regular allowance much like a regular monthly compensation income.

The annuity issuer, mostly an insurance company, takes your money and invests it in other financial instruments such as bonds, shares of stocks and the like.  Any gain or profit as a result of investing your money is then credited to your account, minus of course, the company’s share.

Benefit #1 – It is Flexible

Investing your money in a fixed annuity plan is a wise decision as this type of plan is flexible.  You always have the option to increase your payments especially when you have more than what you need.  On the other hand, an annuity holder can also request to receive more than what was previously agreed upon.  This is particularly useful during economic downfall when the value of money is decreased and the consumer’s purchasing power decreases.

Benefit #2 – It’s a Secondary Source of Income

Fixed annuity plans allow you to receive monthly payouts even before you retire; thus, you have a secondary source of income that allows you to invest in other profit-earning financial instruments such as stocks.  You may even use this extra money to maintain an existing asset such as a piece of land or houses for rent.

Benefit #3 – It Gives You a Means to Control Your Spending

Entrusting a huge amount of money to an insurance company in the form a fixed annuity is also a good way to control your spending.  Having too much money on hand can lead to unreasonable and uncontrolled spending.  You will find it too easy to waste your hard-earned money on things you don’t actually need.  Depositing your money in a bank account also serves the same purpose but, in this case, the decision on how much to withdraw at one time remains yours so you can just as easily overspend.  In a fixed annuity plan, you will receive a fixed monthly, quarterly, biannual, or annual stipend as per your annuity terms.

Benefit #4 – It Postpones Tax Payment

Your money under a fixed annuity plan is non-taxable.  You only pay the corresponding tax once you withdraw or receive regular income from the plan.  This means that the money which you would have used to pay taxes if you didn’t opt to purchase an annuity can generate additional money in the form of interests and investment profits.

Benefit #5 – It is Backed by Law

In unfortunate cases that you insurance company goes out of business, the value of your plan is backed by the assets of your issuer.  In rare cases that the issuing company runs short of assets to cover the return of your money, your state’s Insurance Guarantee Fund will step in and pay you in full.

What to Remember

When purchasing a fixed annuity plan and deciding how much money to set as fixed income, it is important that you discuss your needs with the insurance company.  Deciding on too much or too little can result in financial trouble and difficulties.

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