Insurance can be a confusing topic for consumers and there are a lot of phrases that get tossed around without real meaning. If your client doesn’t understand the terminology, it’s going to be hard convincing them that they need certain services.

Annuity is one such word that not a lot of consumers understand. They may hear it in passing but haven’t been told exactly what it is and how it can help.

What is an Annuity?

An annuity is a contract between the insured and their insurance company where the insured makes payments which are reimbursed at certain intervals throughout the insured’s life. This typically includes a lump sum that is deposited into an annuity account and later paid back in tax-deferred set increments.

Why are Annuities Important?

Annuities are important so that the insured doesn’t outlive their income. It can build a retirement fund and be paid to heirs and provide possible protection against market losses. This is important for anyone planning to retire in the future. This way, they have guaranteed income for them and their spouse after retirement.

What are the Different Types of Annuities?

• Variable: A variable annuity allows for different limits of payments. The client can earn more money through investing the variable annuity, but it also has the risk of losing money.
• Fixed: A fixed annuity is perhaps the most common type of annuity. The annuity account gathers a guaranteed fixed rate of interest.
• Immediate: An immediate annuity provides a guaranteed stream of income in monthly payments for the client’s entire life from the invested money.
• Fixed Index: As with a fixed annuity, a fixed index annuity gathers a guaranteed fixed rate. A fixed index annuity’s rates are based on a stock-market index instead of an interest rate, however. This lowers the security as the stock-market index can cause monetary loss.

If your client already has a life insurance policy with you, it’s especially important to educate them about the value of annuities. While they must pay a lump sum at first, that money will pay them back with a fixed income throughout the rest of their life. This is helpful when they have job loss or difficulties, medical interruptions, drastic lifestyle changes and more. In addition to their 401k, annuities can help set up their life after retirement, so they don’t have to worry about income once they stop working.