Although annuities allow for withdrawals, you need to be aware of possible tax consequences and other possible penalties. You should review your contract and consult federal tax rules before taking any withdrawals. Annuities typically have two types of penalties, Internal Revenue Service (IRS) and insurance company.

When you are ready to “annuitize,” and receive distributions, you may choose one of the following pay-out options:

Life only (Straight Life) – you (‘the annuitant”) receive a specific amount for the remainder of your life, but cannot identify a beneficiary to continue to receive the money after you die, so the payments stop when you (the annuitant) die. While the annuity payments are guaranteed for your lifetime, there is no guarantee that all the proceeds will be fully paid out. Because of these restrictions, this choice provides the highest monthly payout.

• Tax-deferral -- You pay no taxes on interest earned until you withdraw the funds, which means faster growth. To clearly see this advantage, compare this with a CD or a money market account, where you pay taxes annually on interest earnings. Although the gains on annuities will eventually be taxed, this delay will allow your money to grow to a higher amount.
• Ability to set up monthly income for life! (or any other specific period of time (see below)

Looking for a safe way to grow money that will be used in retirement?  Fixed annuities are a solid choice!  An annuity allows you to contribute and accumulate funds to supplement your retirement income.  You pay a “premium” (often a single sum) to the insurance company.  The insurer invests the money and provides you with competitive interest rate that is guaranteed for a set period of time.  These rates are usually higher than the rates offered by bank CDs.

When you purchase a permanent life policy (whole life is the most common type of permanent life policies), a portion of each premium you pay goes into an account called “cash value”. Cash value grows on a tax-deferred basis and will equal to the death benefit when the policy is matured or endowed. It is then paid to the policy owner. The policy can also be surrendered (redeemed) for its cash value at any time. You may also borrow from the cash value if you wish, but you will be required to pay a loan interest on an annual basis for as long as the loan is outstanding.

You may put maximum efforts into establishing and running your business. But unless you take the right steps to protect your business, it may be significantly impaired or forced to close when you, a partner or a key employee dies. Business continuation planning is crucial to ensure the successful transfer of a company or business interests.

Even if no one else is depending on your income, you are still likely to leave behind bills, credit card balances and final expenses such as funeral costs. These expenses could be an unnecessary burden on parents or siblings at a difficult time. You may wish to provide a bequest to your favorite charitable organization, a family member or a friend after you die. Purchasing a life insurance policy will allow you to accomplish these objectives.

Life insurance proceeds paid to named beneficiaries are generally free of federal income taxation if taken as a lump sum. An exception applies if the benefit payment results from a Transfer For Value, meaning the life insurance policy is sold or transferred for value to another party prior to the insured’s death. The life insurance policy may become taxable if you name your estate as the beneficiary, at which time the proceeds become part of your estate and may be subject to estate taxes.

Once your policy is approved, issued and paid-for, the full death benefit is paid to the beneficiary regardless of when you die. You have to continue paying your premiums, however, or risk losing the policy. If the policy is lapsed due to non-payment of premium, you wouldn’t have any coverage and your beneficiary will not receive the death benefit.