It is important to discuss the most common biggest fears about Annuities. These are usually the reasons that determine if an Annuity is right for your financial objectives and goals.
Fixed and Fixed Index Annuity products are designed to pay the best benefits when your money is allowed to remain in the account for extended periods. However, there are types of Fixed Index Annuities that will enable full access to your initial premium without any cost, fee, or penalty. Also, there is never a period that you are not allowed to access the entire balance in your Annuity. Like other investments, while in the surrender period, you may be subject to early withdrawal fees and taxes, but you will always have access to your money. Furthermore, many Annuities allow you to avoid withdrawal penalties if the following situations occur:
Declining Surrender Fees – In most Fixed Index Annuities you are subject to a surrender fee if you withdraw more than 10% of your Annuity value. The surrender period for the most robust Annuities is usually between seven to ten years. However, the surrender fee is reduced each year during the surrender period. At the end of your surrender period, your withdrawal fee is zero, and you will have unrestricted access (without fees or penalties) to your Annuity balance.
If access to your Annuity funds without fees is a top concern, be sure to ask your independent Annuity advisor to show you the Annuity products that allow full access to your initial premium without any cost, fee, or penalty.
Insurance companies are some of the strongest financial institutions in the world. Insurance companies are the institutions that all other entities use to protect from loss. Think about your own life. You use insurance to protection financial loss of your home, auto, personal property, health, and your life. Why not use insurance companies, the entities that specialize in protection to protect your money too?
You rarely hear about insurance companies failing. However, that cannot be said about banks, brokerage firms, and other financial institutions. In the very rare instance of an insurance company failing, Annuity owners are shielded from loss with many layers of protection. That is why you have never heard of anyone ever losing their money in a Fixed or Fixed Indexed Annuity. Although Annuities are not FDIC insured like banks, Annuities have a final layer of protection provided by state-run Insurance Guarantee Funds. These funds are the insurance companies equivalent to the banks FDIC and operate much like the FDIC.
The basic advantage of Fixed and Fixed Index Annuities is that they offer an insurance company guarantee that makes them safe. The insurance company provides you with a written contract called a “policy.” The policy specifically spells out the details of your Annuity. Consequently, the insurance company is contractually bound to provide the benefits that are promised in the policy.
Money placed in an Annuity should be considered more like a saving account and NOT a risk for return based investment. In a Fixed or Fixed Index Annuity, there is never any risk to your principal, nor any risk to your interest after it is deposited into your account. There has never been a single documented incident of anyone ever losing their money in a Fixed or Fixed Index Annuity. To learn more about the guarantees of a Fixed Index Annuity, click here.
Upon the death of the Annuity owner, the full account value is transferred to the owner’s heirs without any fees, cost, or penalties. With most Annuities, the heirs have the option of receiving a lump sum payment, or they can spread out the inheritance over a 5 year or longer period. IRAs are still maintain the “Stretch” provision to heirs.
Fixed Index Annuities can seem confusing to some, but once you have been explained the three key components of these products, they are clear and straight forward. The most important details to understand are:
So that you’re comfortable with the concept of annuities, it is important to work with an advisor who will patiently explain how the features and benefits work for you. For Annuity buyers who want to approach their first Annuity with more caution, you have the option of starting with a small sum of money, and then after gaining a level of confidence in a year or two, increasing the money allocation in the Annuity.
Insurance companies have put in place consumer protection policies that help shield you against unscrupulous advisors. They are called “suitability studies” and suitability is a major protection with all insurance companies. Each new Annuity submitted to the insurance company must pass a series of rigorous financial “tests” to ensure that the Annuity Advisor does not sell a product that is unsuitable to your financial situation. The Annuity Advisor can be suspended or suffer the loss of their license if they submit inappropriate business.
If an application is submitted to an insurance company and the customer’s financial condition does not warrant the approval of an Annuity, the application will be rejected or possibly accepted with a smaller financial commitment.
Finally, the insurance company must spell out in great detail all of their guarantees in the Annuity policy. When you receive your policy, your advisor will review these details. As the owner of the policy, you have a 30 day free-look period to review the policy. In the unlikely event, you see something you do not like, you will have a right to cancel your policy, and the money is returned to the source from which it originated.
A special state-issued license is required to sell Annuity products to consumers. Many financial advisors or banking employees are not licensed to sell these products, nor do they have the training and expertise to explain the pros and cons of Annuity products. Furthermore, some financial advisors earn their living by placing clients money in risk-based stock market-based products, not safe-based Annuities. In some cases, asking your financial advisor about Annuity products would be like asking a Ford dealer if you should buy a Toyota! Before getting advice about Annuity products, it is important to determine if your financial advisor or banker is properly licensed to discuss Annuity products with you. If they are not, it is important to seek out a qualified Annuity expert to explore your Annuity product options.
Today’s modern Annuities have come a long way since their roots some 350 years ago. Many of the fears consumers once had about Annuities have been addressed by the insurance companies who have updated their offerings to provide a wide variety of options to fit today’s unique retirement needs. We invite you to review the information here on AnnuitySeeker and learn more about how an Annuity can help you achieve your financial goals.