REASON #10: Annuities are a type of life insurance product.
It’s easy to think of life insurance as something that reminds you of death. Nobody wants to think about that! Here’s the biggest difference, however: while life insurance can protect your family against the risk of dying too soon, an annuity can protect you against the risk of living too long.REASON #9: Annuities aren’t a securities investment.
Securities investments participate in the stock market which is risky and exciting. Annuities, on the other hand, are the only financial instrument that can guarantee you a lifetime paycheck. To give you that lifetime paycheck, annuities participate either directly or indirectly in the market.- Variable annuities participate directly in the market, but you are restricted as to which investments you can choose, and they can lose you money.
- Indexed and fixed annuities grow your money through indirect participation in the market by earning limited interest based on the performance of a stock market index. Fixed and indexed annuities do NOT lose money as a result of market performance.
REASON #8: There are too many different types of annuities.
There are TWO main types of annuities. The two main types are: Immediate: Immediate annuities are just like they sound. They can pay an income right away, within the year that you sign the contract. Most immediate annuities are annuitized, which means that in exchange for the regular, guaranteed income, you no longer have access to the money. Deferred: Deferred annuities wait to pay you an income, meanwhile, your money grows. Most deferred annuities allow you to lock in a guaranteed growth rate, and some of them offer you guaranteed income without having to annuitize the lump sum.REASON #7: Annuities are way too complicated.
There are two sub-types of annuities: fixed and variable. Fixed Annuities: Fixed annuities in-of-themselves come in two sub-types: fixed and indexed. Both of them offer an interest rate that is either fixed or limited in some way and cannot go above a certain amount. These are insurance products (not securities products) designed to hedge against or keep up with inflation. The average rate of inflation currently is 3.22 percent. Variable Annuities: Variable annuities are investments sold by stockbrokers and financial professionals who are licensed to sell securities products. They are designed to provide market-like performance coupled with the guarantees you can get with insurance products. Because of the market risk, life insurance companies charge a fee for their guarantees known as an M&E fee, risk fee, or Mortality and Expense fee. The average M&E fee for variable annuities is 1.25 percent. Fixed and indexed annuities do not charge this fee.REASON #6: Annuities are very expensive.
If you have an expensive annuity, then you likely the variable type with its average annual fees of 3.54 percent. There are five main costs associated with variable annuities:- A possible upfront sales charge (called a sales charge or front-load fee similar to mutual fund A Shares).
- A sliding-scale surrender charge should you wish to get out of the annuity. Surrender charges usually start around 10 percent.
- Insurance charges such as the M&E fee, administrative costs, and possible distribution fees.
- Management fees such as sub-account fees or the expense ratio similar to mutual fund fees.
- Annual expense fees for the income rider or Guaranteed Lifetime Withdrawal Benefit (GLWB) rider.
Tommy
The information put on the Internet about annuity is probably not truth because everyone is wanting to sell their products l have read a lot about annuity and thier bad things with them but are good thing about them. The most people that run them down are pushing thier products. I do not believe you get and honest or true facts about them.
Annuity Gator
Hi Tommy – Thank you for your comment. True that there are a number of websites out there on the Internet that are more interested in pushing their products and / or accumulating the contact information for potential customers. So, it can certainly take some careful research from an unbiased source in order to get all of the information – which can oftentimes include areas that are considered to be drawbacks of the product(s). We would be happy to run some figures for you in order to help you with determining if a particular annuity is right for you – or even if an annuity would be a good fit at all. Please feel free to reach out to us directly at (888) 440-2468 or via our secure contact form at http://www.annuitygator.com/contact/. Best! The Annuity Gator
CLP
If my variable annuity reports to me a significant quarterly loss, what are my Options? I know that once the spigot is turned on, anything left after passing is lost to my heirs.