Annuity Examples to Explain Bank Benefits



Bank products can be difficult for an individual to understand, especially if that individual does not have previous education or experience with those products. Words and products such as annuities, CDs and IRAs are complex words and products that have no comparisons in the non-banking world. It is only through the use of detailed explanation flyers and examples that banks are able educate their customers and encourage them to invest in these products. Annuities are very tricky due to the vast number of annuities that the banks offer. The annuity examples are extremely beneficial to understanding the benefits of the annuity.



The Single Premium Deferred Annuity is the most common type of annuity. An annuity example for this type of annuity is the younger person. The individual or couple purchases the annuity at a single cost or premium. No other premiums are then paid during the life of the annuity. The interest rate on the annuity is set and all taxes on the annuity are deferred until the money is withdrawn. This is designed for a retirement situation. There is no set time period in which a person must leave the money in the annuity like there is with the individual retirement account or the certificate of deposit.

An annuity example of the single premium deferred annuity is that Anna and Paul purchase the single premium deferred annuity with a premium of 10%. The interest rate is 5% and the amount placed in the annuity is $5000. The account is left to mature for 10 years. This would mean that the premium paid was $500, leaving $4500 to increase by 5% over ten years. This would mean that at the end of the annuity, the couple made $2250 in interest and was able to receive $6750 from the account. That is an increase of $1750 than the original amount.

The Equity Index Annuity was designed by the insurance companies as competition to the mutual fund. This annuity protects the premium and money invested but allows the interest rate to flocculate at the stock market moves. This is popular as a form of investment because the returns can be very high, but the loss is minimized.