Q: Why is it called "Deferred"?
A: Because it is not an Annuity! (And may never become one.) At least, not yet. That's what makes it "Deferred."
Here's what we mean. Technically, an "annuity" is a series of payments. Your DA contract isn't sending you any regular payments (yet). That only happens if you elect to receive your money as a series of payments, that is, as an annuity. (This is called "Annuitization".) You might elect to Annuitize at some time in the future, e.g., when you reach age 65.
There are also some very important alternative income streams that can provide even greater income, sometimes significantly greater, than simple Annuitization. They are called Guaranteed Income or Withdrawal Benefits and they come in several varieties. Exercising your Free Withdrawal Benefits followed by the election of one of these guarantees can sometimes dramatically increase your income. Also, electing a Joint stream of payments (i.e. to you and your spouse) versus Single, can sometimes produce a greater income, if the Joint and Single rates are not Actuarially Equivalent. This is usually due to a mistake by the company or because they have assumed that the Joint option will be rarely exercised on a "Single" policy.
"Never Annuity"
Many Deferred Annuity owners never choose to Annuitize, although this trend is changing. Instead, it is used only to defer taxes on the account's earnings. The account is eventually liquidated as a single lump sum, not an annuity or other income stream.
A: Because it is not an Annuity! (And may never become one.) At least, not yet. That's what makes it "Deferred."
Here's what we mean. Technically, an "annuity" is a series of payments. Your DA contract isn't sending you any regular payments (yet). That only happens if you elect to receive your money as a series of payments, that is, as an annuity. (This is called "Annuitization".) You might elect to Annuitize at some time in the future, e.g., when you reach age 65.
There are also some very important alternative income streams that can provide even greater income, sometimes significantly greater, than simple Annuitization. They are called Guaranteed Income or Withdrawal Benefits and they come in several varieties. Exercising your Free Withdrawal Benefits followed by the election of one of these guarantees can sometimes dramatically increase your income. Also, electing a Joint stream of payments (i.e. to you and your spouse) versus Single, can sometimes produce a greater income, if the Joint and Single rates are not Actuarially Equivalent. This is usually due to a mistake by the company or because they have assumed that the Joint option will be rarely exercised on a "Single" policy.
"Never Annuity"
Many Deferred Annuity owners never choose to Annuitize, although this trend is changing. Instead, it is used only to defer taxes on the account's earnings. The account is eventually liquidated as a single lump sum, not an annuity or other income stream.
