What Are Annuities?

12th October 2011

When it comes to thinking about your pension, the word annuity comes up quite a lot. An annuity works in a very similar way to an insurance policy, but instead of insuring a car, house or other item, you are insuring your life and your health. Annuities mainly come into effect upon retirement where retirees can use any money that they have saved through a private pension scheme to invest into an annuity and draw it out as an income for life. .

Why should I select an annuity?

Annuities are mainly an option for people who believe they might run out of their pension investment before they die. Annuities guarantee you a monthly income throughout your life, so even if you live 30 or 40 years after retirement you will still be eligible to receive a consistent payment, long after your original pension savings may have run out.

How is my annuity determined?

Your medical history, age and sex are all taken into account when determining the level of your pay out. In general, if your health is deteriorating and you are older, you are more likely to get a larger pay out compared to a younger, healthier person. This is due to the fact that many Annuity companies believe the younger, healthier person is likely to live longer and therefore will require a great deal of money over their lifetime.

Where do I start when it comes to choosing an annuity?

When looking for an annuity you will be faced with a range of companies competing against each other for your business, this means that you will benefits from competitive annuity rates.. It’s worth shopping around for an annuity  , to ensure that you obtain the highest possible annuity rate and it is also important to make sure the annuity is tailored to suit your personal needs.

It’s also worth taking into consideration any health issues that you have, which could increase the annuity rate you are eligible for.

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