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Multi-Year Annuities

A Multi-Year Guarantee Annuity (MYGA), also known as a "Fixed Rate Annuity," is a variation of traditional tax-deferred annuity. Just like all other forms of annuities, MYGA's are offered by a variety of different insurance companies. While similar to traditional deferred annuities in many ways, the MYGA was designed to compete with other savings instruments such as bank CD's and Treasury Bills.

Similar to these products, MYGA's offer the annuitant, a guaranteed, fixed rate of interest for a specified period of time, often 1, 2, 3, 5, 7 or 10 years. This rate is fixed for the entire term of the contract.

One of the many competitive advantages that MYGA's offer over bank CD's and Treasury Bills is that interest earnings can grow tax-deferred, meaning that no current tax liability is due on interest earnings until withdrawn. In contrast, holders of bank CD's and Treasury Bills have to pay income tax on interest as it is earned, regardless of whether it is withdrawn or not. This gives the MYGA a distinct advantage if the annuitant wants the certainty of a guaranteed, fixed rate of return, but doesn't need current income.

Like most annuities, MYGA's have early withdrawal penalties known as "surrender charges," however, these types of policies generally offer the annuitant some limited liquidity options when it comes to making withdrawals. For example, should the annuitant need to make a lump sum withdrawal or want to use the MYGA to provide monthly income, he or she can typically withdraw the greater of their interest earned or 10% of the surrender value each year, without penalty.

A "fixed rate" annuity is one variation in a broader family of traditional, tax-deferred annuities. Other varieties of tax-deferred annuities include: variable annuities, equity-indexed annuities and multi-year guarantee annuities. While each of these types of annuities share many similarities, the primary difference between each is the method by which interest is both earned and credited.

A "Variable" annuity is a contract between you and an insurance company. Although it shares many similarities with fixed rate and/or equity-indexed annuities, a variable annuity has three major distinctions from these annuities: risk, fees and often how the death benefits are paid. Setting aside these differences, a variable annuity can look, act and feel much like a more traditional fixed or indexed annuity.

The introduction of the "equity-index" has revolutionized the insurance and annuity industry in recent years. Like other tax-deferred annuities, the equity-index annuity is a contract between you and an insurance company; however, it is considered neither a fixed rate nor variable annuity.

A Single Premium Immediate Annuity (SPIA) is a financial instrument purchased from an insurance company with single premium payment. In exchange for this lump-sum payment, the insurance company agrees to pay the buyer a series of fixed-income payments for life, for a specified period of time or both. Income payments from SPIA's generally begin within 30 days from the date the policy is issued, but can start later.