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What is a Combination Annuity?

Malcolm Tatum
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum

Combination annuities are examples of an annuity format that combines the more desirable qualities of the fixed annuity and the variable annuity. Sometimes referred to as a hybrid annuity, this investment option allows the investor to respond to shifts in the market in a way that will result in the best possible return on the investment. This degree of versatility in the arrangement of the annuity can allow the investor to make use of the asset in the event that unforeseen circumstances arise that call for a change in the way annuity payments are issued.

The best way to understand a combination annuity is to first address the way that fixed and variable annuities function. A fixed annuity usually involves a preset schedule of annuity payments that are disbursed over the life of the annuity coverage. With a fixed annuity approach, the person who sets up the coverage assumes the risk rather than the person who is insured. The variable annuity tends to forego payments to the holder until retirement or a specified age has been reached. Unlike the fixed amount of each payment that is characterized by a fixed annuity, the variable annuity payment will vary based on the performance of the securities that are used to fund the annuity program.

An annuity is a type of contract between an individual and an insurance company.
An annuity is a type of contract between an individual and an insurance company.

With the implementation of a combination annuity, the insured party has an opportunity to take advantage of the best elements of both types of annuities. The insured may choose to defer the fixed payments until retirement is reached, thus ensuring a consistent source of revenue in later years. At the same time, the insured may opt to receive variable payments for a period of several years, then revert to deferring the payments until retirement. This approach may be employed when the insured is attending college, or going through a life transition, such as retraining to enter a different job market.

The exact structure of a combination annuity may vary somewhat, depending on local regulations regarding financial arrangements and planning. Before deciding that hybrid annuities are the right option, it is a good idea to consult a financial planner who is aware of all applicable local laws that will govern the establishment of the annuity program.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including WiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

Learn more...

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    • An annuity is a type of contract between an individual and an insurance company.
      By: Rido
      An annuity is a type of contract between an individual and an insurance company.