What Questions Should You Ask Before Buying Annuities?

Annuities have evolved as a major business. Baby boomers are retiring at a rate that is staggering. Many of them look for investments that are willing to offer stability and certainty given the amount of turmoil and unpredictability of the market. An annuity can be termed as an insurance product. You make heaps or series of payments, and the money is tax-deferred at a fixed rate or price. In return, your agent will make periodic payments for your entire life. In addition to this, annuities also yield a death benefit. There are a number of annuity types, including: fixed, variable, and equity indexed annuity.

But annuities have to be chosen very carefully after discussing properly with top fiduciary financial advisors. Annuities are effective in shielding you from outliving your money, but with this also come additional restrictions and costs which you must scrutinize before purchasing an annuity.

Things to Know Before Purchasing an Annuity:

  • The reliability of the insurance company: Will it be able to deliver as it promises? Asking for the exact rating of an insurance company is beneficial for the consumer since they will have little information at their disposal to determine if the company will be able to deliver as it promised.  You should be skeptical of purchasing an annuity from a company with less than AM best “A” rating. Don’t be misguided with misleading phrases like “consistent”, “good” or “strong”.
  • Map out the total cost of the annuity inclusive of all other expenses. Mutual funds are not as expensive as annuity contracts. The guarantees of a contract are almost always directly proportional to the additional costs it is likely to bear. There will be an administrative fee, morality, expense fees, fees for other additional/optional benefits (income, death and access features), and direct or indirect asset management fees.
  • Estimate the contract value according to your investment amount under three circumstances: if the market flourishes, falls or remains stagnant. However, calculations involving this are more complex than is apparent; hence if you aren’t absolutely certain you should just let it pass.
  • Will mutual funds be more beneficial than annuities? Everything in life has their advantages and limitations. Mutual funds, although less expensive, lack assurance and guarantee. Annuities, on the other hand, though more expensive, can offer guaranteed income, death benefit, and creditor protection. Consult a financial advisor before you take any step. It is essential that you are furnished with all the relevant information before you make any kind of investment.
  • What are the guaranteed retirement income benefits, if any at all? Deferred annuity products enable the consumer to withdraw a certain minimum percentage. It is usually between 4-7% of the initial value.
  • You should decide whether you should purchase it through a financial service professional or an insurance company directly. Even if you don’t buy it from the former, consider consulting a professional, i.e. a licensed and credentialed financial advisor before you take any step.

All you need to demand is transparency on the part of your insurer. Walk away from the deal if you aren’t satisfied. Consumer satisfaction is of the utmost importance, and money, as they say, is everything. Make sure you do everything to protect it.

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