5 Tips to Purchase Fixed or Indexed Annuities
Guest article written by Juanita Martinez
You can invest in annuities for a guaranteed source of income at your retirement. What you need to do is you pay either a lump sum amount or series of installments to an insurance company for a guaranteed monthly payout after your retirement. Read this article and check out tips to invest in an annuity.
Tips to invest in annuities
Here are some tips that will help you to decide whether or not you should invest in an annuity and if yes, then how to choose the right annuity that’ll benefit you the most.
1. Determine whether or not it’s right for you: Many people get confused as whether to choose life insurance or annuity. You may consider purchasing an annuity if you don’t want to become financial burden for your family after your retirement as you’ll get a steady income as long as you live. A life insurance is a better option for you if you want your designated beneficiary/beneficiaries to get the policy proceeds in the event of your death. However, if you want the benefit of life insurance from your annuity, then you may invest in a variable annuity with death benefit.
2. Which annuity to choose – Fixed, variable or indexed: You need to decide the purpose for which you’re buying an annuity. If you’re about to retire and want a consistent monthly income, then a fixed annuity is the right option for you. Whereas, you may invest in fixed, variable or indexed annuity if you’re building up money for your retirement.
3. Understand different payout options: Acquiring knowledge on different payout options will help you choose the right one for you. The options are given below.
* Fixed period -If you choose this option, then you’ll get payments for the number of years (usually for 10-20 years), as mentioned in the contract. In case of the policyholder’s death, the beneficiary or the estate gets the remaining amount.
* Fixed amount – Opting for this option will make you receive payments until the funds are exhausted. Like fixed period payout option, here also, the beneficiary or the estate gets remaining proceeds if case of the policyholder’s death before the funds are exhausted.
* Certain and life – In this payout option, the policyholder receives payments for a predetermined time (usually 5-10 years). The beneficiary receives payments for the remaining years if the policyholder dies before completion of the specified time period.
* Life only – If a policyholder chooses this option, then he/she gets payment until death. However, the company keeps the remaining funds if the policyholder dies before the payment of all funds.
* Joint and last survivor – If you select this plan, then the company will make payments till both the persons named in the policy are alive. As per the contact, the amount of payment may get reduced in the event of one policyholder’s death.
4. Assess quality of the company: It is quite necessary to purchase annuity from a good company. So, verify the company’s quality of investments, its fiscal fitness along with assessing whether or not it is financially sound.
5. Check out fees and surrender charges: By purchasing an annuity, you actually sacrifice liquidating your money for tax-deferred growth. Usually, you need to pay a fee when you withdraw funds or cancel the annuity contract. However, some companies provide bailout provision that means you can withdraw all the money without having to pay surrender charges if the interest rate gets reduced below a specific rate. So, inquire about surrender fees while purchasing an annuity.
It is advisable that you take help of a financial advisor before investing in an annuity. An advisor may assess your financial situation and advice you on which type of annuity may be best for you.
Juanita Martinez is associated with the AmPmInsure Community and has been offering her suggestion on insurance to the community since 2007. Further, she has also written contributory articles for various financial sites. Some of her articles include ‘Ho3 Policy: An open peril insurance’, ‘Insurance for fire damages’ and ‘Buying life insurance on someone without their consent’.