What makes annuities different from other investments?

17th April 2012

An investment is something that you do generally to increase your cash flow or income. An annuity is something that you take out as a way of investing your cash to provide you with a steady and stable return income for the remainder of your life, and although many people see them as the same thing, there are many things that set the two apart.

An annuity is a long term investment which is made during retirement, whereas in general other investments are made throughout a person’s life. An annuity is generally a low-risk investment unless you choose to make it otherwise, this is because a person is dependent upon it to live and therefore may not be able to take the kind of risks that you would come to associate with other common investments.

What are some benefits of purchasing an annuity?

Purchasing an annuity is often seen as a somewhat lower risk investment, and for many people they like to feel assured that they are guaranteed an income for the remainder of their lives. Generally annuities are backed by both the Financial Services Compensation Scheme and major insurance companies so this gives many people a great deal of comfort when they are looking to invest their hard-earned cash.

In addition, when it comes to retirement many people are no longer looking to task risks with their investments, rather they just want to ensure that they have a stable income which will support them for the rest of their lives. For this reason, standard annuities have quickly become a popular option.

What do I need to take into consideration?

Purchasing an annuity and making an investment could be seen as two very different things – an annuity is a way of securing an income for the rest of your life, an investment is often seen as a way to make more money, but in some situations this can involve more of a high-risk and high-return opportunity. Standard annuities will not give you the types of returns that you may receive from a high-risk investment, but they also do not come with the risk.

If you are looking to make a heavy return on any investment that you make then you may choose a different type of annuity or you may not look at an annuity at all, but you will need to consider what could potentially happen if there are problems with your investment.

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