Here are 5 things to consider...
1. Safety First
Insurance company financial ratings do matter if you are buying a guaranteed fixed rate or fixed index annuity when it comes to guaranteeing your future benefits and/or income. Insurance companies are rated by AM Best, Fitch, Moody’s, and Standard and Poor’s. For example, to check on an insurance company rating, look up the insurance company you are considering at www.ambest.com. These ratings are similar to the way schools grade, A, B, C, etc., though be cautious about annuities issued by an insurance company rated less than “A” by AM Best.
2. Costs and Expenses
Check for any initial or annual costs or expenses before buying the annuity you are considering. Are the costs justified, compared to similar annuities with comparable benefits like a future guaranteed lifetime income benefit rider, or waiver of surrender charges for stays in a nursing home, poor health, or death.
3. Ask for a Proposal
Ask for a proposal showing minimum cash value and income guarantees each year for 20 or more years compared with other insurance company annuity guarantees. Proposals showing minimum interest rate guarantees are important to illustrate for a fair comparison between annuities VS “pie in the sky” assumptions. Remember, past performance is no guarantee of future earnings, so insist on seeing minimum interest rate and income guarantees.
4. How many Years before Surrender Charges Disappear
Confirm how many years surrender charges continue and what the charges are, because like a CD, you will have to pay a penalty to cash in part or all of the annuity for any reason, if the amount you cash in is greater than any contractual free withdrawal provisions.
5. Questions? Where to get Help Understanding Annuity Definitions and Terms
Understanding annuity terms and benefit features can be daunting. To get a clearer understanding of annuity terms and features, and to better evaluate the pros and cons of various annuities, consider working with an experienced licensed insurance agent, many of whom have financial accreditation initials after their name, probably earned through the The American College of Financial Services, Bryn Mawr Pennsylvania. Initials such as CLU (Chartered Life Underwriter), ChFC (Chartered Financial Consultant), or CFP (Certified Financial Planner) are what you should look for. Finally, insurance agents, in particular those with the accreditation initials CLU, ChFC, and CFP, are required to meet ethical standards that put your interests above their own, and have usually been an agent for several years, so are sufficiently savvy about many of the types of annuities and their intricacies that you may be interested in buying.