Fixed Annuity

Fixed Annuities are interest based, similar to bank issued CD's. The difference is, Fixed Annuities are geared toward retirement savings. A lump sum locks in at a certain interest rate for 1-10 years. The premium or initial deposit usually ranges from 5,000 to 1,000,000. This is low risk and has more liquidity than CD's. They are tax-deferred and usually offer higher yields than bonds, CD's or treasuries. The insurance company guarantees you will earn a minimum rate of interest during the time that your account grows. The insurer also guarantees that the periodic payments will be a guaranteed amount per dollar in your account.

These payments may last for a definite period or an indefinite period. A fixed annuity uses one of two distribution methods.

Immediate Fixed Annuities - start issuing monthly payments right away, until the initial premium, plus the interest, gets depleted.

Deferred annuities - don't pay out until the end of their term, compounding interest like any typical savings instrument.

Life insurance is designed to create an estate. (Provide money when someone dies). An annuity is designed to liquidate an estate. The term liquidate in this sense simply means the annuitant or policy holder converts his estate into cash while he/she is still alive.