5 Types of Annuities

Traditional: An annuity is a contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, payout a stream of payments to the individual at a later point in time.

Fixed Annuity: A fixed annuity is a contract between an insurance company and a customer, typically called the annuitant. The contract obligates the company to make a series of fixed annuity payments to the annuitant for the duration of the contract. Retirees often use a fixed annuity to provide a steady income for life.

Fixed Index Annuity: A fixed–indexed annuity is a type of annuity that grows at the greater of a) an annual, guaranteed minimum rate of return; or b) the return from a specified stock market index (such as the S&P 500®), reduced by certain expenses and formulas.

Variable Annuity: A variable annuity is a tax-deferred retirement vehicle that allows you to choose from a selection of investments, and then pays you a level of income in retirement that is determined by the performance of the investments you choose. Compare that to a fixed annuity, which provides a guaranteed payout.

Hybrid Annuity: A hybrid annuity is an insurance company investment that gives an investor the option to allocate funds to both a fixed and a variable annuity. You may hear some investors refer to a hybrid annuity as an “equity-indexed annuity” or a “fixed-indexed annuity.”