Annuities for a lifetime

PFP Group is a licensed annuity broker within the state of Michigan providing a wide range of annuity investment options to its insurance and investment clients. First it is important to understand the concept of annuities and the differences between types of annuity contracts.

Annuities simply are investment contracts with insurance companies of which premiums paid are invested for a number of years (term) to provide a stream of income to the annuitant beginning at some point in time. The point in time may be before the annuity contract term expires, or upon the expiration date. In even simpler terms, annuities are a contracted savings and investment vehicle for the annuity holders.

There are two primary types of annuities, fixed and variable.

A fixed annuity provides a guaranteed rate of interest during the accumulation period and a guaranteed (“fixed”) amount of income when the contract is annuitized. With a fixed annuity, the insurance company is responsible for investing the premium payments and therefore assumes investment risk. The insurance company is obligated to provide guaranteed annuity payments regardless of whether their investments have generated an adequate rate of return.

In contrast to a fixed annuity, the key features of a variable annuity can fluctuate (they are “variable”) during the accumulation period and during the payout phase. Also in contrast to a fixed annuity, the variable annuity contract holder assumes much of the investment risk. With a variable annuity, the insurance company provides the contract holder with the ability to determine how his or her premiums are invested. One investment option is a variable account which typically consists of equity, bond or money market mutual funds. The other option is the general account of a variable annuity which provides a guaranteed return. The contract holder decides how much risk or variability they want to tolerate by allocating premium payments among the general and variable accounts. The amount of money accumulated and the amount of income during the payout phase are determined by the returns of these accounts.

Each type of annuity has its advantages and disadvantages from a risk and or reward perspective. PFP Group advisors can provided detailed financial planning analysis of each clients current and expected financial situations and can make recommendations of which type of annuity contract if any at all make sense for achieving the clients objective.