Five Things You Might Not Know About Annuities

By Compuquotes Team on August 11th, 2008


With all the talk about annuities providing you the retirement option of our choice, you ought to be able to easily decide whether to get that annuity or not. The question is: is that annuity really the kind of retirement option you need? Annuities are great and loaded with features and benefits, but if they are not what you wanted in the first place, you don't achieve your retirement objectives and your annuities are no good to you then.

After scouting and asking around and comparing annuities, whether fixed or variable, immediate or deferred annuities, with other financial investment vehicles, you are just about convinced to go for annuities. Make sure that you know all there is to know about annuities and the particular annuity type you are acquiring. Otherwise, you might end up with a product that you cannot use.

It will probably help to point out five facts that you probably don't know about annuity up to the point of purchase.

First, your annuity is only as strong and sound as the insurance or investment company that issues it. If the company is weak and it fails in the long run, your annuity goes down the drain with it. Just because the company is faring well now does not mean it will still be faring well by the time you need your annuity payments ten or twenty years down the road. Check out the financial strength and track record of your insurance company.

Second, not all annuities are no-cost or charges-free. Some of the annuities' benefits may have hidden costs and charges. For all you know, even the guarantee may have a fee and you have to pay for it. Look at the wide array of benefits that the annuity offers. If you cannot use those benefits or you think you will not be able to enjoy them, and you are not sure of the fact whether it is free or with-cost, don't get those benefits or riders.

Third, some annuity contracts may have surrender periods that will hinder you from getting to your money, or the expected income in the future, or delay your ability to get to that money when you need it. Look this provision up in the contract and make sure that no prohibitions exist to delay or negate the release of the money at the time you determined you will want to receive it.

Fourth, despite the contention that tax on income earned in some annuity types may be collected later or deferred, there are some revenue regulations that restrict your taking money from the fund or annuity for you to enjoy that tax shelter. Once you begin the slight draw or distribution, confirm if it will be taxable or not, and what will be the penalties for non-payment.

Finally, check out the fine print of the annuity contract, as for all you know, there may be even more than five facts that you don't know about your annuity. Remember that disclosure statements for you are legal requisites; you have a right to be provided copies of these statements. Clarify those disclosure statements that contain the charges and limitations even before you sign the contract and pay for the annuity. Although the fine print may intimidate you, it will be worth your while to check each and every detail.

Given these 5 considerations regarding annuities, you will be in a better position to decide how you want the annuity to go. Remember, annuities are not for everybody.

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