Annuities in Maryland

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An annuity is a contract between an individual and an insurance company. Basically, a lump-sum payment or series of deposits are made over time. An important feature lies in the fact that deposited funds earn interest on a tax deferred basis. At the end of the accumulation period, the annuity owner can elect to receive accumulated funds in one lump sum, guaranteed payments for a specified period of time, or even a guaranteed lifetime income that can not be out-lived. At death, annuity payments made to beneficiaries avoid probate!

Three basic types of annuities

There are generally three types of annuities: Fixed, Variable and Equity Index (EIA).

Fixed Annuity: Often Called the CD of the insurance industry, the issuing company guarantees that the owner will earn a certain flat rate of interest during a specified period of time. (similar to a bank CD) The most important advantage of the annuity over a CD lies in the fact that deposited funds generally earn a comparably higher credited interest rate on a tax deferred basis. This results in the phenomenon known as "triple compounding". That is: compounded interest on deposited funds, interest on the interest, and interest on tax savings.

Variable Annuity: This product allows the owner to invest in a fixed account or a range of different mutual funds. The rate of return will vary depending on the performance of the underlying mutual funds that have been selected. Like a fixed annuity, account growth is tax deferred. This can be a terrific investment vehicle however; the internal product expenses should be examined to ultimately determine the appropriateness of this product.

Equity Index Annuity (EIA): This is a special type of tax deferred financial product. During the accumulation period, the owner makes either a lump sum payment or a series of payments. The insurance company credits the account with a return that is based on changes in a specified stock index, such as the Dow Industrial, the NASD or the S&P 500. The unique advantage of this product lies in the fact that during a given year, if the stock market rises, the owner of an EIA will participate in and enjoy additional gains. A decrease in the value of the index i.e. S&P will not result in any loss to the account ! In plain language, an EIA can be a good way to share in a portion of the potential upside of a stock market index while at the same time being assured that the principal investment will never go down (even if the stock market index to which it is linked decreases.) In addition, most companies also guarantee a minimum rate of return.

Variable annuities are securities regulated by the SEC. Fixed and Equity indexed annuities are not securities and are not regulated by the SEC.

Feel free to request our Free informative report "THE CD ALTERNATIVE." In simple language, it outlines 9 important and compelling advantages of an Annuity over a typical CD.

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