The Principal Financial Group

Principal Financial

Annuity Plans ...

Unlike life insurance, which provides financial protection for your beneficiaries should you die too soon, an annuity provides you with financial protection from living too long. Annuities enable people planning for retirement to accumulate money, and protect themselves from the risk of outliving their income.

There are two types of annuities:

  • Immediate - An immediate annuity allows for immediate payments to be paid to the annuitant which are based on the payout option chosen. This annuity can only only be funded by one initial payment and is known as a Single Premium Immediate Annuity (SPIA).

  • Deferred - A deferred annuity allows for the delay to a future date of payments to be paid to the annuitant which will be based on the payout option chosen. This annuity can be funded by one initial payment, known as a Single Premium Deferred Annuity (SPDA), by payments of the same amount paid on a set schedule, known as a Level Premium Deferred Annuity (LPDA), or by flexible payments of whatever and whenever the annuitant wants to make a contribution (within the limits and parameters of the annuity contract), known as a Flexible Premium Deferred Annuity (FPDA).

The annuitant may also choose from several settlement and payout options:

  • Life Annuity - The life annuity will provide the annuitant guaranteed monthly income payments for the annuitant's life. All payments cease when the annuitant dies. There is never anything left for a beneficiary.

  • Life Annuity with a Period Certain - This option provides for life long income, but also guarantees payments during the period certain. The period certain could be 5 years, 10 years or even longer. If the annuitant died within the period certain, the beneficiary would receive the regular monthly payments until the period certain expired. (NOTE: Also know as Guaranteed Minimum Annuity)

  • Life Annuity Refund - This is a variation of the Life Annuity with a Period Certain. It provides a refund of the annuitant's contributions to the annuity. Joint Life and Survivorship Annuity - This option is designed to cover more than one annuitant. Both annuitants will receive monthly payments until one of then dies, then only the survivor will continue to receive payments.

  • Temporary Annuity Certain - With this option the insurance company will guarantee payment for a specified number of years. If the annuitant outlives the pre-determined number of payments, then the payments will stop. If the annuitant dies prior to the pre-determined year, the beneficiary will receive the balance of the account.

Annuity contracts can provide for either before tax (qualified) or after tax (non-qualified) premium contributions. With a tax-deferred (qualified) plan, you don't have to pay income tax every year on the interest your annuity earns. As your money compounds year by year, an annuity can significantly outperform annually-taxable investments, such as CD's or a Money Market Fund. The principal in a fixed annuity is guaranteed by the insurance company

Unlike fixed annuities, which provide a fixed rate of return, the results of a variable annuity are directly tied into one or a combination of different accounts, including stock and bond portfolios. The annuitant can choose to allocate their premiums among a variety of investments which offer varying degrees of risk and reward. There is no guarantee of principal with variable annuities because the investment choices are in the hands of the annuitant, and because the variable product has variable returns, there is no way to guarantee a rate of return. The risk of the investment and return fall on the annuitant, not the insurance company. However, by choosing among the available fund options, the annuitant can create an asset allocation that meets his or her objectives and risk tolerance.

Annuities can be utilized to accumulate retirement savings, provide income for a specific number of years or life, for IRA rollovers, gifts and for the exchange of cash values from a life insurance policy or endowment contract.

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Last modified: August 23, 2007