I am an experienced Series 7 tutor whose current clients include Morgan Stanley, Merrill Lynch, New York Life Insurance Co., Ameriprise Financial and individuals who must be licensed by the SEC and FINRA. I have taught professionally for over 16 years, and I have been a fee-only financial adviser since 2003. I will tutor you at your home or other preferred location within the greater San Francisco Bay Area.
Tuesday, March 26, 2013
What is an Annuity?
An annuity is the OPPOSITE of life insurance!
Both are bets you make with an insurance company, but they are opposite sides of the bet. With a life insurance policy you are betting that you will not live past your actuarial mortality date*. With an annuity you are betting that you will live well past that date.
With a life insurance policy you pay a monthly premium so that your heirs will get a lump sum payout when you die. With an annuity, you pay a lump sum up front and get a monthly payout for the rest of your life. If you are right, you may well get much more back over your lifetime than your original lump sum.
When you are young and employed and have a young family, life insurance is a way of providing income to your family even if you are not around to earn a salary.
When you are older and the kids are grown and out of the house, it may be time to reverse your bet. Plunking down a lump sum for an immediate annuity means you will get a monthly check for the rest of your life whether you continue working or not.
When you are older and your assets have grown, they may well exceed the value of your life insurance policy. Moreover, premiums for term-life insurance become prohibitively expensive the older you get. Do you still need to keep paying for that life policy or do you want to get paid just for living a hopefully long and fruitful life?
* Your “actuarial mortality date” is that point in the future when half the people your current age and gender will already be dead.
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