Annuities provide three main benefits:
- Death benefits - The basic death benefit offers a guarantee that when you die, the insurer - at a minimum - will pay out the amount you paid in.
- Living benefits - People often buy annuities with retirement in mind, because annuities can pay out in lump-sum amounts or provide a guaranteed income for as long as they live.
- Tax deferral - You aren't taxed on any interest, dividends or capital gains that accumulate inside of your annuity contract until you take a withdrawal. However, if you withdraw money prior to age 59 1/2, you may be subject to an additional 10% penalty tax.