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Considerations for investing in an annuity

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There are many different kinds of annuities, and a recent CNN report notes that for some investors, figuring out which annuity is best can be difficult. Annuities pay out in different ways and include different stipulations and requirements. Understanding the basics of a few popular annuities can help guide a potential investor toward the appropriate choice.

The source cites an immediate annuity as a popular choice, which is essentially a lump sum investment that pays out in monthly installments for the rest of the subscriber's life. This type of annuity is popular among people who are near retirement. An immediate annuity provides strong, sustainable payouts for retirees looking for financial security.

Income annuities are another option, the source notes. These annuities come with some amount of loss risk because they include mortality credits that transfer funds from investors who die to subscribers who live longer. An investor in good health with other forms of coverage like life insurance that benefits his or her heirs may want to consider this type of annuity, but should understand that while returns can be high in certain situations, funds are only available through scheduled payouts once invested, and disappear when the investor dies.

According to the Insurance Information Institute, low rates have improved annuities sales in recent months, following a significant decline in the wake of the recession.

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