- Image via Wikipedia
Annuities often times get a bad wrap. If they are sold correctly, they can be used as a tool. If you are considering an annuity make sure you ask these very important questions as they will come to light sooner or later.
7 Questions to Ask Before Buying An Annuity
When you are looking for it is important that you enlist an experienced financial advisor who can help you choose the best policy. Finding the best policy means working with an advisor who acts as a fiduciary on your behalf, protecting your best interest.
1) Is the annuity agent independent- To find the most competitive annuity rates, you will need to use an independent agent, who is free to shop several companies on your behalf versus a captive agent who can only represent one company.
2.) Have you done some comparison shopping and considered all of your options? Because annuities are long-term savings vehicles, you’ll want to make sure the company you pick will be around at least as long as you will. And, as you learned in the previous discussion, different annuities offer a wide range of choices, prices, features and flexibility.
3.) Does the rate on a fixed annuity look too good to be true? You want a competitive interest rate at renewal time. If the company is offering bonus rates (a higher interest rate for a set period of time) make sure the underlying interest rate and the company selling the annuity are financially viable. Once the bonus rate term expires, there is no guarantee going forward that renewal rates will be competitive. Be especially careful if you are exchanging annuities.
4.) What are the annuity’s surrender fees and how long are they in place? If the surrender fee is high (typical fees are around 6-7% and decline over a period of approximately five to seven years), you could feel locked into a contract from which it will be costly to escape.
5.) What is the track record of the funding options offered in a variable annuity? Don’t be swayed by last month’s top performer. Look for strong returns over a three-to-five-year period or more. Newspapers, such as Barron’s and the Wall Street Journal, are available in your local public library – publish rankings of various funding options on a regular basis. The history of various funding options also can be found in Morningstar and Lipper Analytical Services publications, available in larger libraries. Remember, past performance is not a guarantee of future results.
6.) Does a variable annuity offer multiple funding options in case you change your investment strategy a few years down the road? Look for a range of funds to diversify your retirement savings as your needs change.
7.) What is the insurance company’s rating? While anyone who is properly licensed to sell insurance products (e.g., banks, brokers, agents) can sell annuities, the annuity contract is issued by an insurance company. So, you’ll want to consider the company’s rating. Is it financially secure with a good claims paying record? While this is most important for fixed annuities, it is relevant to any guarantees (e.g., death benefit) in a variable annuity as well. Checking up on an insurance company is easy at your local library, or you can contact your state’s Department of Insurance. A.M. Best, Standard & Poor’s and Moody’s all rate the financial stability of insurance company general accounts. Morningstar and VARDs evaluate and report information on variable contracts only. Variable annuities are rated by independent sources such as Lipper Analytical Services, VARDs and Morningstar. It’s a good idea to choose an annuity from a company that gets high marks from at least two independent rating sources.
Related articles by Zemanta
- Shout Out Loud About Your Annuity (bucks.blogs.nytimes.com)
- Should I put $900,000 in a variable annuity? (money.cnn.com)
![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=8ab64639-cabe-48a5-a411-47fa10148416)
Related posts:
