Annuity Loan Privilege

It is a dreadful situation if we grow old, run out of money and can’t even work to sustain our living. This is why insurance company created annuities. An annuity can assist retirees to set up a secured future living by providing a future income. A person, if he decided to, can begin preparing for his dream future life even at an early age through annuity.

Those persons who take early steps in preparing for their senior years through annuity can enjoy their pension plan even in their early ages. The annuity loan is a privilege given to underage annuity holder who does not yet qualified for payout.  An Annuity loan extends the limit of the program by allowing the owner to borrow a certain amount of the funds for present financial needs.

Annuity Loan – The Owner’s Choice

Annuity is usually offered with an option for annuity loan. The annuity loan is an owner’s choice to access their annuity funds for their current financial situation. The loan enables the holder to receive a partial amount from the annuity funds and still be free from taxes. In the deferred annuity the owner can almost borrow half of the annuity investment depending on the insurance company and provided that the owner returned the amount borrowed at the specified time.

The annuity loan value is free of tax charge only if the regular payment is met and no delay has been made. Failure to do so will result to consider the amount borrowed as a withdrawal and will be subject to tax. The payment made for the interest and the principal loan will be automatically reimbursed for the annuity holder funds.

Advantages and Disadvantages of an Annuity Loan

There are advantages and disadvantages in availing the annuity loan, which can be considered before deciding to take the loan.

Mentioning first the advantages of the annuity loan, one of the good points of this privilege are that it is tax free. Compare to withdrawals the annuity loan is still not subject to tax. Another advantage of the privilege is that it lessens service fees. The annuity loan also avoid penalty charges not like with withdrawals which is subject to high risk of penalty. In addition, the structured loan settlement gives additional advantages to the annuity loan borrower. The usual payment terms of the loan are five years. There are some insurance company that gives longer terms or extension to adapt to the need of the borrower. For example are those who borrowed the annuity fund to buy a primary home.

The disadvantages of the loan program are that when the annuity owner failed to repay the value in the agreed and specified terms, the loan is reverse to withdrawal. Once considered withdrawal the value will be subject to tax and penalty charge. In this manner, the annuity borrower will be forced instantaneously resolve the principal loan and interest together with the loan fees and tax due. Another disadvantage of the annuity loan is that it slows down the investment earnings until the owner fully repays the amount borrowed.

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