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Wednesday, January 14, 2009

Annuity Payments

Annuities are a series of payments made by an institution like an insurance company to the annuitant at regular intervals of time over a fixed time period. The payments are fixed and may be on a yearly, semi annual, quarterly or monthly basis. Generally, there are two types of annuity payments called ordinary annuities and annuities due.

Ordinary annuities require payments at the end of every period until the maturity period of the investment. For example, with bonds, usually the seller pays
coupon interest payments to the buyer at the end of every six months. However, sometimes annuity payments will be made at the beginning of each period like a rent payment. These are called annuity due. Depending on the frequency of annuity payments, annuities can be divided into deferred annuities and immediate annuities. In immediate annuities, annuity payments are made at much frequenter intervals. Deferred annuities will make the annuity holders receive payments depending on the nature of the annuity. If the deferred annuity is a fixed deferred, the holder will get the guaranteed rate of return at regular intervals over the life of the contract. If it is variable deferred annuity, the payments depend on the performance of the underlying investment. This means the annuitant will not receive any guaranteed amount. However, the payments under the variable annuities are tax-free or tax-deferred. Read More>>