While some people prefer to invest in stocks, bonds or mutual funds, some choose to invest in annuities. Investing in an annuity has advantages as well as downsides. Some people say it is safer than investing in stocks or other investment choices while others disagree. Let’s first understand the annuity definition. An annuity is an insurance product. It is a contract between you and the insurance company. Basically, you give them money and they will, in turn, pay out income to you as stated in your contract. Annuity payments are usually spread over a long period of time. The money you put into an annuity may accumulate tax deferred which means you will not have to pay any taxes to the IRS on your income put into the annuity until you withdraw your money.

There are several types of annuities that you can invest in. Some people prefer to put their money in fixed annuities, some like variable annuities more and some prefer to invest in an annuity index. As with all types of investments, there are different levels of risk associated with investing in different types of annuities. The higher the level of risk you accept, the more your money will grow as long as the market is good and your annuity investments are in the right places. But, a lot of people invest in annuities because they would like to invest safely, hope to get the tax benefits and like many 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 decide 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 opt for receiving large payments for a smaller amount of time. While payments are guaranteed to a certain extent, there are a lot of expenses you will have to pay to the insurance company in exchange for the guarantees offer. This is the reason why many people think that annuities are expensive investments.