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Fayetteville, AR 72703

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Arkansas Insurance Blog

How Do Annuities Work?

With so many options for refunding retirement from Roth IRAs to pensions to 401Ks, it is easy to forget about an investment vessel known as an annuity. In short, an annuity is a contract between yourself and an insurance company with agreed-upon goals that could include lifetime income, principal protection, legacy planning, or long-term medical cost planning. An annuity is often referred to as an investment. Still, it is important to recognize that it is a transfer of risk contract that locks you and the insurance company into certain obligations that can only be broken in extreme circumstances. Annuities work by providing the policyholder with access to limited funds on a specific cadence like monthly or annually and can be considered similar to income received via Social Security.

While there are many reasons to purchase an annuity, the most common is because it provides guaranteed income for the entirety of your life. Like other insurance types, the policyholder pays a premium to the insurance company to harbor the risk of an annuity. This payment can be made over a specific period of time or in a single lump sum and is considered part of the insurance accumulation phase. Unlike auto or home insurance, you don’t pay an annuity premium indefinitely. Eventually, you stop paying for the policy, and it begins to pay you in what is known as the payout phase. 

At Adams Insurance & Financial in Northwest Arkansas, our friendly and talented team of insurance professionals are ready and willing to answer all your questions on annuities. We’ll work tirelessly to ensure that you understand the specific aspects of your annuity and customize a policy that best meets your future needs. Give Adams Insurance & Financial in Northwest Arkansas a call today to learn more about how we can help you secure your financial future.

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