Deferred annuities

With a deferred annuity, you purchase the contract with the intention of accumulating savings for a long-term goal, typically retirement income. You can fund a deferred annuity with a lump sum, small regular payments, or sometimes a combination of the two methods.

Over time your contract is designed to build value tax deferred, allowing your money to accrue faster than it could if you had to withdraw annually to pay income tax on your earnings. You do have access to the money in a deferred annuity account, though there may be taxes and fees associated with withdrawing.

Insurance companies position the guaranteed death benefit as one of the biggest advantages of a deferred annuity. That benefit ensures that if you die before you begin taking income from your account, your heirs will receive the full amount of the principal you invested in the annuity. Some contracts go further, also guaranteeing that the benefit will cover increases in value, though those contracts cost more than contracts that don’t cover the increases.

When you’re ready to begin receiving income from your contract, you can convert your account value to a stream of income or arrange another type of payout.