While some people choose to invest in stocks, bonds or mutual funds, some choose to invest in annuities. Investing in an annuity has advantages as well as disadvantages. Some people say it is safer than investing in stocks and most of the other investments out there while some others disagree. Let us first get to know the annuity definition. An annuity is a financial product issued by an insurance company. It is a contract between you and the insurance company. You basically give the insurer money and the insurance company will, in turn, pay out income to you in accordance with the annuity contract you signed. Annuity payments are usually spread over many years. The money you put into an annuity may accumulate tax deferred which means you will not pay any taxes to Uncle Sam on your income put into the annuity until you withdraw your money.

Not all companies offer the same types of annuities. Some people prefer to invest in fixed annuities, some prefer variable annuities and some choose to invest in an annuity index. As with any investments, there are risks associated with investing in different types of annuities. The higher the level of risk you are happy to take on, the more your annuity account will grow as long as the market is not down and your annuity investments are in the right places. However, some people invest in annuities because they want to invest safely, hope to benefit from tax deferrals and like quite a few of the guarantees that the insurance companies offer.

Investors can choose to receive the annuity payments in a single, lump sump payment, monthly payments, quarterly payments or yearly payments. You can choose how large each payment will be or how long you want to receive payments for. Some people want to receive payments for life whereas others may want large payments for over less time. While payments are guaranteed to a certain extent, there are many expenses you will have to pay to the insurance company for the guarantees they give. This is why lots of people think that annuities are expensive investments.