You may even choose not to pay the interest and instead have the interest amount added to the amount of the outstanding loan. In any event, the loan is ultimately taken into account by a reduction in the proceeds at your death or a reduction of cash surrender value at surrender. If you do not pay the interest, you are not entitled to an interest expense deduction. If you do pay the interest, you may be entitled to a deduction. See the discussion of interest in Chapter 9 .
Annuities are cousins of life insurance policies.
In a typical annuity contract, the insurer agrees to make payments to you as long as you or a designated beneficiary lives, sometimes with a fixed minimum number of years. The Accumulation Phase and the Payout Phase. With the deferred annuity, there is an accumulation period during which income is earned on a tax-deferred basis. This tax-deferred compounding growth is an attractive feature that makes the annuity a suitable investment vehicle for many people planning retirement. This tax-deferral feature is especially valuable in a period of higher tax rates.