What is a fixed annuity?
What Is a Fixed Annuity? A fixed annuity is a type of insurance contract that promises to pay the buyer a specific, guaranteed interest rate on their contributions to the account. By contrast, a variable annuity pays interest that can fluctuate based on the performance of an investment portfolio chosen by the account's owner.
What is an annuity and how does it work?
The annuity will then generate a guaranteed income payout for a specified period of time or for the life of the annuitant. The life insurance company is responsible for the security of the money invested in the annuity and for fulfilling any promises made in the contract. Unlike most bank accounts, annuities are not federally insured.
What happens when a fixed annuity contract expires?
Once the initial guarantee period in the contract expires, the insurer can adjust the rate based on a stated formula or on the yield it is earning on its investment portfolio. As a measure of protection against declining interest rates, fixed annuity contracts typically include a minimum rate guarantee.