12180 Ridgecrest Road Suite 522 Victorville, CA 92395 760.245.7733 (voice) 760.245.4224 (fax) 760.245.7733 (text) info@nwiins.com (email)
12180 Ridgecrest Road Suite 522Victorville, CA 92395760.245.7733 (voice)760.245.4224 (fax)760.245.7733 (text)info@nwiins.com (email)

Annuities 101

An annuity is a financial product sold by insurance companies that allows you to put aside money, have it increase each year without paying taxes, and then receive payments in the amount and on a timetable you control. The interest you make is taxed as ordinary income when it is withdrawn. There is no income limitation on how much you can place in an annuity.

Annuities also come in fixed and variable forms. A fixed annuity provides you a fixed series of payments under conditions that are determined when you buy the annuity. In this respect, fixed annuities are like defined-benefit pensions. The insurer is promising to provide you with the payments specified in your annuity.

Variable annuities are designed to let investors participate in the stock market and still enjoy the tax-deferred, insurance, and lifetime income benefits of an annuity. Your annuity premiums are invested in a variety of subaccounts—usually mutual funds, so you have the potential to gain higher returns than in a fixed annuity, but you also have the potential to make less than a fixed annuity do to the volatility of the stock market.

Some annuities have life insurance protection, and in many cases will guarantee you that you never receive less than the amount of premiums you've paid into the annuity.

In addition to the fixed and variable annuities, there are also equity index annuities which claim to blend the secured returns of a fixed annuity with the potential stock-market upside of a variable annuity.

Many annuities offer a 10% penalty-free withdrawal option each year, and any additional withdrawals are subject to fees and penalties. Surrender fees are usually charged for many years of the contract.

Life Insurance 101

Life insurance policies go by many different names, but they can be reduced down to two types; temporary (Term) and permanent (Whole Life).

Here are some of the main features of term and whole life insurance.
  • Features of term life insurance
    • Provides death benefits only
    • Pays benefits only if you die while the term of the policy is in effect
    • Easiest and most affordable life insurance to buy
    • Purchased for a specific time period, such as 5, 10, 15, or 30 years, known as a “term”
    • Becomes more expensive as you age, especially after age 50
    • The term must be renewed if you want coverage to be extended beyond the term length
    • Can be used as temporary additional coverage with a permanent life insurance policy
    • Can be converted to whole life insurance
  • Features of whole life insurance:

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