Question

How would you describe the attributes of an annuity? What are some key differences between an ordinary annuity and an annuity due?

Answer 1

There are three primary attributes of an annuity i.e,

Fixed annuities, equity indexed annuities, and variable annuities.

Fixed annuity:

*Earnings come from Insurers investments which are very conservative but low-yield.
*Guarantees minimum interest rates for the policy duration.
*High level of safety but may not keep up with inflation.
*Principal is not subject to loss.

Equity indexed annuity:

*Earnings are based on changes in a major market index
*Guarantee minimum interest rates for the policy duration.
*Principal is not subject to loss.

Variable annuity:

*Earnings are based on performance of investment subaccounts.
*Designed to cope with inflation.
*Principal is subject to loss.

Differences between an ordinary annuity and an annuity due:-

Orinary Annuity	Annuity due
-Annuity in arrears -Starts at End of Year (first pmt due a yr from now) -payments are made at the END of each period. -the number of payments is equal to the number of interest periods	-Annuity in advance -Starts NOW, Beginning of Year (first pmt due right now) -payments/receipts occur at the BEGINNING of each period. -the number of interest periods is one less than the number of payments