This material is not intended to provide legal, accounting or tax advice, you may wish to consult a competent attorney, tax advisor, or accountant. The word guarantee is based on the financial paying ability of the insurance company.
An annuity is a contract issued by an insurance company. It is a financial product that provides tax deferral of interest and capital gains and the option of a guaranteed monthly income for life. The primary purpose of an annuity is that of a retirement vehicle.
In a fixed annuity, the insurance carrier guarantees a minimum interest rate of return and guarantees the principal.
If the fund is valued less than the original investment, the beneficiary will receive the original investment.
With variable annuities the owner bears the investment risk. With additional costs some contracts will guarantee the fund value not to drop below the initial investment.