Undoubtedly annuities are an investment that attracts the season investor, yet there are some tips that an individual would consider when purchasing an annuity. Unlike bank savings accounts, annuities are not traditional savings investments that you would make at your neighborhood bank. Annuities are tax-deferred investments that are contacts that are sold and issued by insurance companies. When you purchase the annuities you pay for the promise of repayment beginning at a specific date and usually lasting for a particular period of time. Consider the following tips before getting an annuity:
Which Kind of Annuity Will Work for You?
There are several types of annuities that are offered by insurance companies that all have specific features. Annuities can provide either a predictable income stream and deferred tax growth. There are fixed-annuities, variable annuities, and indexed annuities. Fixed annuities can provide an investor a rate of return that is fixed for any number of years. A variable annuity can have the probability of increasing in value at considerably higher rates. However, it also has the ability to slip in below the rates of fixed annuities. The overall rate strictly depends on the performance of each of the mutual funds within the annuity.
The More Annuities the Better
Consider working with an annuity agent that can provide you with a number of different annuities from a number of different insurance companies. This will help you determine the best possible annuity that works for you. An agent who works with multiple companies may have a better idea of which one works for your particular needs. It addition, it is also helpful to know if the agent is an independent one, that is, he doesn’t have ties to one particular company. You should also understand the agent’s commission structure. What is he or she getting from the deal? Your agent knows that best practices in business, requires a higher level of transparency.
You should understand what you fees are: If you work with an agent, he or she should be able to spell out for you any fees, monthly or quarterly frees. In addition, each kind of annuity may have their own type of fees associated with it. Find out, exactly, what kind of fees the annuity has, including early penalties, transfer, or administrative fees. For example, an agent will have “surrender fees” which can put you a tough decision when you are interested in switching agents or annuity providers. Often times, these fees drop off or decrease as the years go by. Find out how the percentage the fees decrease per year.
Understand the health of the company that you are “investing” in. Since annuities are not backed up by the FDIC like other banking or saving instruments. The level of risk the investor has depends largely on two factors: the annuity itself (and its subsequent reinvestments in the market or other mutual funds) and the health of the company issuing the annuity. Every insurance company who issues an annuity has a rating. Your agent should be able to tell you what those ratings are.
Stay Involved with Your Money
The truth is that the best investors are engaged with their funds. Opening an account and putting it on “autopilot” is never the best way to manage your funds. As with any investment, their will be risks and changes. Yet, an investor should always read the prospectus and the quarterly reports to the annuities he or she has.