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Bar News - July 6, 2007

NHBA Insurance Agency: Annuities – A Primer, Part 2


This is the second in a series of NHBA insurance articles on Annuities by Suzanne Morand, NHBA insurance Agency.  Click to read the first article.

Following up on the last article, here’s a brief explanation of the various types of annuities:


In a fixed annuity the insurance company guarantees the principal and a minimum rate of interest.  As long as the insurance company is financially sound (a very good reason to do your homework before choosing an insurance company), the money invested in a fixed annuity will grow and will not drop in value.


In a variable annuity the money is invested in a fund similar to a mutual fund but one only open to investors in the insurance company’s variable life insurance and variable annuities.  The value of your investment, and the amount of money paid to you, is determined by the investment performance (net of expenses) of that fund.


All of the following types of annuities are available in fixed or variable forms:


A deferred annuity received premiums and investment changes for payout at a later time.  Deferred annuities for retirement can remain in the deferred stage for decades.


An immediate annuity is designed to pay an income after the immediate annuity is purchased.  The time period depends on how often the income is to be paid.


A fixed period annuity pays an income for a specified period of time such as ten years.  The amount that is paid doesn’t depend on the age (or continued life) of the person; the payments depend instead on the amount paid into the annuity, the length of the payout period, and (if it’s a fixed annuity) an interest rate that the insurance company believes it can support for the length of the payout period.


A lifetime annuity provides income for the remaining life of a person (called the “annuitant”).  No other type of financial product can promise to do this.  The amount that is paid depends on the age of the annuitant, the amount paid into the annuity, and (if it’s a fixed annuity) an interest that the insurance company believes it can support for the length of the expected payout period.


With a “pure” lifetime annuity, the payments stop when the annuitant dies, even if that’s a very short period of time.  A guaranteed period (essentially a fixed period annuity) can be added to the lifetime annuity which means if the annuitant dies before the fixed period ends, the income continues to the beneficiaries until the end of that period.


Next time, we’ll look more closely at variable annuities and, the new player in the field, equity-indexed annuities.

If you have questions regarding annuities or other life insurance products, please contact Sue Morand of NHBA Insurance Agency at 866-642-2292 or via e-mail at



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