Annuities Basic Training

Answers to questions you may have about annuities


Ready to learn the basics of annuities? Start here. Then, when you’re ready to review your specific needs, schedule a consultation with a Navy Mutual representative.

What is an annuity?

An annuity is a contract that allows you to invest a sum of money with a life insurance company in exchange for a guarantee of future fixed income over a set period or even a lifetime.

What is the difference between life insurance and an annuity?

Life insurance is designed to meet the needs of survivors by leveraging premium payments during your lifetime into a death benefit for the beneficiary. A death benefit can be used to replace lost income, offset debts, or, in some cases, pay for expenses associated with chronic illness. An annuity, on the other hand, is used to either accumulate assets most commonly intended for retirement purposes or generate income during your lifetime or the lifetime of your beneficiary.

What is the difference between a fixed and variable annuity?

With a fixed annuity, you deposit money with an insurance company and receive a guaranteed principal and interest payment in the future. In addition, your principal is guaranteed to not decrease. The insurance company can provide these guarantees because it invests your money primarily in bonds or other conservative, fixed investment instruments.

With a variable annuity, you choose the underlying investment portfolio, so the annuity value fluctuates up and down based on changes in market conditions. If the portfolio of investments performs well, your returns may outperform those of a fixed annuity. However, if they don’t, you may expose future income payments and your investment principal to risk of loss. Most variable annuities have a larger fee structure than most conservative fixed annuity alternatives.

What is the difference between a single premium annuity and an installment premium?

A single premium is a one-time lump-sum premium payment that is used to fully fund the contract. Installment premiums allow you to make a series of future payments.

What is the difference between a deferred annuity and an immediate annuity?

A deferred annuity is designed to grow a surrender value in a tax-advantaged way, with the option to initiate income payments in the future. Prior to the distribution of payments, earnings accumulate on a tax-deferred basis. An immediate annuity starts a guaranteed income stream right away, with payments beginning within one year of the contract purchase date.

 

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