Fixed Deferred Annuity

Fixed deferred annuity is a contract between you and the insurance company in which the insurance company pays you a guaranteed return.

This interest rate can be guaranteed for one or more year in which your investment earns compound interest. When the guaranteed period is over, a new rate is declared which is guaranteed never to fall below a minimum amount specified in the contract/policy. In fixed deferred annuity your interest earnings compound on a tax-deferred basis.

Fixed deferred annuities can be purchased by either by paying a single premium i.e. giving your insurance company a lump sum premium payment, or by paying flexible premium i.e. paying a lower re-occurring premium payment on a monthly, quarterly, or annual basis.

Fixed deferred annuities not only provide tax deferral but also offers safety for your premium. It offers a current interest rate which may never be less than a lifetime minimum guaranteed interest rate which is generally 3%. This current interest rate is declared and guaranteed by the insurance company. So your premium in a fixed deferred annuity is not subject to market risk.
Death benefit on most fixed deferred annuity is the full contract value; it means that your premium plus accrued interest compounded annually and credited daily minus any prior withdrawals is calculated as of the date of death.

A fixed deferred annuity also provides you with access to your money should the need arise. In a fixed deferred annuity, withdrawals during the first several years are generally subject to surrender charges. However most companies provide the flexibility to withdraw a portion of your deferred annuity's account value, which is usually 10% each year, without company–imposed surrender charge. Once the surrender charge period has expired, you can generally access your money at any time without surrender penalties. Withdrawals may be taxable and, if they are made prior to age 59½, they may be may be subject to a 10% penalty tax.