Sales of equity-indexed annuities topped $30 billion last year, according to Investment News. These investment products offer rates of returns based on the performance of an index.
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How Annuities Work
An annuity is a contract purchased from a life insurance company that provides a stream of payments or income for a set length of time.
There are two main types of annuities. Deferred annuities allow investors to put away money on a tax-deferred basis so the entire investment can grow tax-free until withdrawals are taken in the future.
An immediate annuity has no accumulation period. The investor pays the insurance company a lump sum and receives a stream of payments immediately (within 12 months).
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