- What should I know before I buy annuities?
- December 16, 2013
An annuity is a life insurance product that pays periodic income benefits for a specific period of time or over the course of your lifetime. Annuities are long-term investments. They can allow you to save money on a tax deferred basis or provide you with retirement income immediately, and they protect you against outliving your assets. There are several different types – some provide a guaranteed fixed income and others invest in the stock market and provide a variable income.
Variable annuities are typically mutual funds that invest in stocks, bond and money market options. There are certainly pros and cons to both. While annuities can be a great choice, they are not for everyone.
The Insurance Information Institute suggests five questions you should ask yourself before you buy annuities.
1. Am I comfortable with the risks involved in this annuity? Some are guaranteed and some are not.
2. Do I have emergency funds? If you don’t have additional cash you can count on for an emergency, an annuity is not for you.
3. What will I be charged if I want to withdraw my investment early? That depends on the annuity. Shop around, because they all have different fees and different early withdrawal charges.
4. What happens to the money if I die? There are several different options out there. Some continue to pay to beneficiaries and some do not. You’ll want to know before you buy.
5. Am I sure that this annuity is good for someone of my age, health and financial situation?
The Securities and Exchange Commission and state insurance commissioners generally regulate variable annuities. Insurers are required to take various customer characteristics into account before suggesting a product. State laws also have what’s called a free look period, usually from 10 to 30 days during which an annuity can be returned with no strings attached.
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