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Nitesh Patel
Finance | Financial advice

The Ins And Outs Of Annuities
By Nitesh Patel

Annuities are sold by life insurance companies to provide benefits during your lifetime. An annuity provides a guaranteed lifetime income that you can elect to have start either immediately after purchase or at a future date. You do not have to pay income tax on the accumulated earnings until payouts start.

Payout, when the time comes, may be in one of several forms:

  • Straight Life Annuity -- You receive an income for the rest of your life. However, no payments are made to anyone, even your dependents, after your death. This is sometimes called a “pure” annuity. It provides the largest amount of income per dollar of purchase money. This type often is recommended for a person who needs the maximum amount of income and either has no dependents or has taken care of them through other means.

  • Joint and Survivor Annuity -- Payouts are made for as long as either you or your designated survivor lives.

  • Installment Refund Annuity -- Payouts are somewhat less than a straight life annuity, but they will at least equal the amount paid in premiums, regardless of when you die; any refund is paid to your beneficiary in installments.

  • Life Annuity with Period Certain -- Payouts are made to you for your life. However, this type of annuity features a “guarantee” provision. This means that if you die within a certain period after you start receiving income, usually 10 or 20 years, your beneficiary will receive regular payments for the balance of that period.

    Because annuities have many different features, there are a number of factors to examine before you buy. For example, are there penalties for early withdrawals? Are there graduated withdrawal charges over a period of years? How much can you withdraw at any one time without a penalty?

    In addition, if you are considering the purchase of an annuity, you should ask:

  • What is the current interest rate and how often does it change?

  • What is the minimum interest rate guaranteed in the contract?

  • Is there a “bail-out option” that permits you to cash in the annuity, without withdrawal penalties (there may be tax penalties), if the interest rate drops below a specified figure?

  • Are there load charges or annual administrative fees? How much are they and how will they affect your return?

    Annuities are a popular product, providing an important funding for retirement for many Americans. Consumers should consider carefully their options when purchasing an annuity.

    For questions about a specific annuity product, contact the insurance company directly or ask your agent. For general information about annuities, call the National Insurance Consumer Helpline (NICH) at 1-800-942-4242. This toll-free telephone line is staffed by trained personnel and licensed agents who can answer a wide variety of questions and can provide consumer brochures.

    Nitesh Patel is a financial representative with the Northwestern Mutual Financial Network based in Clearwater for The Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin). To reach Patel, call (727) 799-3007 or e-mail

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