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Fixed Period Annuity

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Fixed Period Annuity

Fixed Period Annuity

An annuity can be defined as a contract bought with certain amount of money to give the annuitant or the buyer regular payouts in return. Fixed period annuities are same as loans in reverse, because of a consumer buys an annuity for certain amount of money (purchase price) and gets annuity payouts containing interest in return, over time.

The insurance companies pay back sum of money over time along with some interest, in return. Taxes are typically deferred on the annuities till the payouts are given to the buyer or the annuitant.

How a Fixed Period Annuity Works

Annuities depend on certain factors. It varies in frequency of payments, amounts paid and the time periods over which payments are done. Under certain circumstances, the consumer or individual annuitant is entitled to decide either the amount paid in every payment or the time period over which the payments are made. As the sum of money is generally decided by the money paid into the annuity. Shorter fixed period annuities mostly give higher payments to the annuitants than longer fixed period annuities.

If an individual decides on how much is disbursed to her or him with every payment then the larger sums normally indicated shorter period of payments and an option of lower sums would happen over a greater period of time. Some of the annuities can payout over lifetime of the annuitant.

Fixed period annuity is an annuity where an individual annuitant or buyer / owner of the annuity selects the period of time over which annuity is returned back. A fixed annuity pays fixed amount of money over fixed period of time selected by the individual annuitant. The period of time is typically a function of years like 10 or 15 years during that yearly, half-yearly or monthly payouts are made to the individual annuitant. Fixed period annuity is generally sold in following categories:

  • 5-years fixed period annuity - Level payouts are made over a tenure of 5 years
  • 10-years fixed period annuity - Level payouts are made over a tenure of 10 years
  • 15-years fixed period annuity - Level payouts are made over a tenure of 15 years
  • 20-years fixed period annuity - Level payouts are made over a tenure of 20 years

People generally select fixed period annuities, since it provides coverage during that period of time when no other income or benefits is earned. Like, a retired person may select to buy an annuity which would pay back for a period of time after his or her regular earnings have stopped; but the retirement benefits haven't yet started. If he or she dies prior to the annuity has completed paying out, the rest amount can be transferred to the beneficiary.

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