American United Life Insurance Annuities: What You Need To Know

An annuity is a long-term, tax-deferred investment designed for retirement. It is an agreement between an individual and an insurance company, where the individual pays into the annuity and the insurance company pays out at a later date. Annuities can be fixed or variable, and they can provide a steady income stream during retirement. American United Life Insurance Company (AUL) is one such company that offers annuities and life insurance products. AUL has been in business for over 60 years and has a strong financial strength rating, indicating its ability to fulfil its annuity obligations. The company offers a range of annuity products, including multi-year guaranteed annuities (MYGAs), indexed annuities, and single premium income annuities (SPIAs).

Annuities as a long-term, tax-deferred investment

Annuities are long-term, tax-deferred investment products issued by insurers that provide a steady income during retirement. They are well-suited for individuals who want to supplement their retirement income and are best for those nearing retirement.

Annuities are a contract between the holder and an insurance company, where the holder pays a premium upfront, and the insurance company invests it and provides a stream of payouts at a later date, typically during retirement. This contract can be immediate, where the first annuity payment is due after the initial premium is paid, or deferred, where the first payment is made a specified number of years after the initial premium.

The accumulation phase of an annuity is when payments are made, and these funds may be split among various investment options. The annuitization phase is when the holder receives payouts, which can last for a set amount of years or the rest of their life. The payouts include the principal amount and any investment gains.

Annuities are tax-deferred, meaning investors won't pay taxes on the initial contribution or investment gains until they make withdrawals. When withdrawals are made, they are taxed as ordinary income. Withdrawing from an annuity before the age of 59 1/2 typically results in a 10% penalty on top of the income tax.

There are different types of annuities, including fixed, variable, and indexed, each offering different investment options with varying risk profiles. Fixed annuities offer a guaranteed interest rate and fixed payouts, while variable annuities are linked to the stock market's performance and offer greater return potential but come with higher risk. Indexed annuities are based on a stock market index and offer positive investment potential with protection from market downturns.

Fixed and fixed indexed annuities

A fixed annuity offers account value growth in the form of a guaranteed interest rate. This means that you will receive a fixed, competitive interest rate on your investment. Fixed annuities are a good option if you want predictable returns and do not want to take on the risk of investing in the stock market.

On the other hand, a fixed indexed annuity offers account value growth that is tied to the performance of a market index, such as the S&P 500. This means that your returns will depend on how the index performs. For example, if the index performs well, you will see gains, and if it performs poorly, your principal will be protected. Fixed indexed annuities offer more growth potential than fixed annuities but also come with more risk and a lower potential return.

Both fixed and fixed indexed annuities can provide a guaranteed income stream for retirement. They can also be used to provide income for a spouse or partner. These annuities are designed to give you a steady, reliable source of income during your retirement years.

When considering a fixed or fixed indexed annuity, it is important to speak with a financial professional to determine if this type of investment is right for you and to understand the specific features and terms of the annuity contract.

Annuities for retirement savings

Annuities are a great way to save for retirement. In simple terms, an annuity is a contract between you and an insurance company, where you pay in and, in turn, the insurance company pays out. Annuities are a long-term, tax-deferred investment that can provide a fixed or variable stream of income. They are designed to give you a steady, reliable source of income during your retirement years and can be a secure way to avoid outliving your assets.

There are two main types of annuities: fixed and variable. With a fixed annuity, you know ahead of time how much you will receive, as the rate of return is fixed for a set number of years or for life. Variable annuities, on the other hand, offer a higher growth opportunity but come with more risk, as the return is based on the performance of a basket of stock and bond products.

When it comes to timing, there are also two main types of annuities: immediate and deferred. With an immediate annuity, you pay a lump sum to the insurer and start collecting regular payments right away. Deferred annuities, on the other hand, are more of a long-term tool. After paying in, you don't collect until a specified date in the future, allowing your money to accrue interest or benefit from market gains.

Annuities can be a great addition to your retirement savings plan, but it's important to consider the fees and complexities associated with them. Many annuities come with surrender fees, which are incurred if you withdraw your money early. Additionally, the annual expenses associated with annuities can be quite high, sometimes exceeding 2%. It's also important to note that the net returns on withdrawals are taxed as ordinary income, which could result in a higher tax rate than capital gains.

Despite these drawbacks, annuities can provide peace of mind and ensure a steady income stream during retirement. They are particularly appealing to those who are uncomfortable with managing an investment portfolio or worry about outliving their savings. Before purchasing an annuity, it's always a good idea to consult a financial professional to see if it is the right choice for your specific situation.

Annuities with LTC benefits

Another benefit of annuities with LTC benefits is the flexibility they offer. Individuals can choose from a variety of asset-based long-term care products, including long-term care insurance and annuity-backed long-term care packages. These products can be purchased for a single person or two people, with benefits available for both. If the policy is not used for long-term care, the accumulated value goes to the individual's beneficiaries at death.

To be eligible for LTC benefits, individuals must meet certain health criteria and show that they need help with activities of daily living, such as eating, dressing, bathing, or moving from one place to another. The long-term care portion of the annuity may provide access to a separate cash fund, with benefits that can significantly enhance monthly payouts if care is needed. This can provide financial protection and peace of mind for individuals and their loved ones.

Annuities for inheritance planning

Annuities are a great way to plan for inheritance and ensure that your loved ones are provided for after your death. Here are some key points to consider when using annuities for inheritance planning:

Understanding Annuities

Annuities are essentially contracts between an individual and an insurance company. The individual pays a lump sum or a series of payments to the insurance company, which then provides a steady stream of income during retirement. Annuities can be structured in different ways, such as fixed annuities, variable annuities, or immediate annuities, each offering different benefits and features.

Naming Beneficiaries

When purchasing an annuity, you can name your spouse, children, or other family members as beneficiaries. This ensures that the annuity payments will continue to be made to them after your death. You can also choose to leave the remaining money in your annuity account to a designated heir.

Payout Options for Beneficiaries

Beneficiaries typically have a few options for receiving the death benefit from an inherited annuity. They can choose a lump-sum payout, which provides all the money upfront but may result in higher taxes. Alternatively, they can opt for a stretch provision, which spreads out the payments over their lifetime, reducing the tax burden.

Tax Implications

The tax implications of inheriting an annuity depend on whether it is a qualified or non-qualified annuity. Qualified annuities are purchased with pre-tax dollars, while non-qualified annuities are bought with after-tax money. For qualified annuities, the entire distribution is usually taxable, whereas for non-qualified annuities, only the earnings are taxed.

Seeking Professional Advice

Inheritance planning can be complex, and it is always recommended to consult a financial advisor or estate attorney. They can help you navigate the tax implications, choose the right type of annuity, and ensure that your beneficiaries' needs are considered.

By incorporating annuities into your inheritance planning, you can provide financial security for your loved ones and give yourself peace of mind knowing that they will be taken care of.

Frequently asked questions