4 Cons You Need to Know About Annuities

By Compuquotes Team on March 27th, 2008

Despite everything that the insurance or investment broker says, annuities do have their share of disadvantages or downsides. Notwithstanding if the advantages far outweigh the disadvantages, you will have to be aware of these disadvantages.

Take a look at four basic cons you need to know about annuity.

  • 1. With different types of annuities, you can never be sure about the terms and conditions for each.

Not all these annuities are the same in features. While it is simple enough to understand fixed annuities as merely having fixed income for a fixed period at a preset time, it is not for everybody to have an easy grasp of how a variable annuity differs, or how advantageous immediate annuity is over and above a deferred annuity in terms of benefits, or conversely in terms of tax implications. There are some with unfortunate experiences about annuities who say that some annuity products are nothing but expensive, overly-made-up financial products that do not deliver the expectations.

  • 2. There is a possibility that you'll get lesser returns for your investment.

Even though annuities are touted as best-yields, you can never be a hundred and one percent sure about the returns if you are not careful. While fixed investments like annuities guarantee a certain level of return, this may not be that attractive to those who would rather take a risk and be speculative, take a look at other high-yield investments albeit riskier ones, and get better returns. The risk is somewhat commensurate to the returns so financial advisers tell you that if you are not willing to take the risk, you should not look for higher returns. However, there are still investment options with fairly moderate risks attendant to them, but will nonetheless ensure better returns for your money. It all boils down to your making careful and detailed study of the possibilities.

  • 3. Annuities may not be all that flexible.

Fixed annuities especially will not allow you the flexibility to vary or increase your income-earning potential. If there is an emergency, you may not have ready access to your money, especially if it has not been pre-stipulated. After lumping all your available money now to an annuity, you should not look at future investment opportunities anymore, as the fixed terms of an annuity may not allow you to do so.

So consider this, you just had a windfall on your retirement benefits or inheritance, and you instinctively placed the lot on annuities. The flexibility angle comes to play here, because after lumping them all in the annuity, you will no longer have access to that lump until such time in the future as stipulated in the annuity terms. And then again, you don't have the flexibility in terms of emergencies, because annuities are only able to provide the regular income over time, and will not cover emergency or unplanned costs.

  • 4. The fees and charges attendant to annuities may be prohibitive for some.

Before you finally decide on that annuity option, take a look at the finer prints of the policy. Watch out for hidden fees. For all you know, some of the negative feedback of insurance and investment clients about annuities are focused on the high and varied fees attendant to different kinds of annuities whether fixed or variable or deferred.

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