Annuities may be a useful tool for those who want a steady stream of income throughout their lives. While most annuities include a death benefit, an annuity is almost the opposite of a life insurance policy – annuities offer financial protection against outliving your income.
Buying an annuity can be a complicated decision. Following are a few key considerations for buyers before deciding whether to purchase annuity policies:* Review all of your other savings plans, pensions or retirement funds to determine whether you need an annuity and whether the annuity you are considering is the right one for you based on your age, financial status, investment objective and risk tolerance. Is there a possibility that you could outlive your assets?. Will you keep the annuity long enough so that the charges do not eat up your investment?.* Determine whether you want your investment to be steady and fixed or variable. While variable products offer an opportunity to capitalize on market highs, they also carry additional risk in a downturn.
* Be careful about exchanging one variable product for another. For instance, exchanging a variable annuity for a fixed or equity-indexed product may result in a “surrender charge” and higher annual fees, along with a new period of time during which you cannot withdraw money from your account without substantial surrender charges. Always check the schedule of surrender charges and other fees. They may be higher on the variable annuity with the bonus credit than they were on the annuity you already own.
* Make certain the company from which you are considering buying an annuity product is reputable. A good place to start is to look for the Insurance Marketplace Standards Association logo. Only companies that have proven through extensive outside review that they adhere to IMSA’s stringent Principles and Code of Ethical Market Conduct can display this logo. Visit www.IMSAethics.org to see if the company is listed and for other information.
* Be sure the company offering the annuity product is financially strong. Many independent services rate the financial strength of insurance companies, such as Standard & Poor’s Insurance Rating Services (www.standardandpoors.com), Moody’s Investor Services Inc. (www.moodys.com), Fitch Ratings Inc. (www.fitchratings.com) and A.M. Best Co. (www.ambest.com).
* Check with your state’s insurance department to be sure the company you’re considering buying from is licensed to do business in your state.
* Remember, an annuity is a legally binding document. Read the annuity contract carefully and be sure your agent has answered your questions thoroughly before you buy. – NU.