# How a Fixed Annuity Works

### Premium(s)

To purchase a fixed annuity you make a premium payment (deposit) by completing an application and writing out a check or transer
funds to an insurance company. Once the company receieves the funds the company will issue an annuity policy.

### How annuities really work

Interest Rates

When an annuity policy is issued the company sets the first year interest rate. This rate
is guaranteed for the first policy year and we refer to it as the

__current rate__.
The

__base rate__ is that interest rate which the company projects it will pay in the
second year and thereafter. This

__base rate__ is also referred to as the "renewal rate" is not guaranteed. In fact
some companies pay a "renewal rates" which are less than the originally projected

__base rate__.
Note the the difference between the

__current rate__ and the

__base rate__ is referred
to as the

__bonus rate__.
We use the

__Current Rate__ (for the first year) and the

__Base Rate__ (for each year thereafter) in
our formula to calculate the projected "Account Values."

Surrender Charges, Withdrawal Charges

The surrender charges last for a period years and we calculate the projected "Account Value"
for the number of years the surrender charges exist. For example; if the surrender charge of the
policy lasts seven years, we calculated the projected "Account Value" for only seven year.
The reason is the after the surrender charge expires the interest rate is dropped to the contractual
guaranteed minimum and the policy values are usually transfer to another annuity. To continue
projecting the accumulated value beyond this point is meaningless.
Most annuities allow you to withdrawn interest from your annuity without penalty.
Some annuities allow you to withdraw interest with out paying a penalty at the end
of the policy year or after 30 days, then as earned.

All most all annuities allow you to withdraw up to 10% of the account value before
a surrender charge or withdrawal charge is applied. __YOU must know__ how
the Withdrawal or Surrender Charges apply before buying an annuity policy to save yourself
unnecessary expenses.