Points to consider when purchasing immediate annuities can be a daunting task, and usually you cannot change your mind once you have made the purchase. That is why it is very important to do your homework first. Here are a few factors that you have to put into consideration when purchasing these products.
There are a lot of highly-rated insurance providers today that offer immediate annuities, and at any point in time, one or two companies might be offering more monthly income for your investment than the rest, due to their own financial capacity and marketing techniques. Insurance experts suggest getting quotes from at least three insurance companies in your state, and ensuring it is on an apples-to-apples comparison for the same kind of annuity.
Keep in mind that this is the safe part of your retirement income. Thus, you have to check the background of the insurance companies on your list. A reputable insurance company should be highly rated by renowned rating agencies such the Better Business Bureau (BBB), Standard & Poor’s or A.M. Best. If you think you will be rewarded by taking an investment risk, do that with the fraction of your retirement savings that you do not invest in an immediate annuity and put it in the stock market where there is more potential reward for taking investment risk.
Consider Inflation Protection
Inflation protection starts the payment at a lower level, but increases it once a year, usually by the inflation rate calculated by the government. Inflation protection reduces your “money’s worth ratio” by about five cents on the dollar. Considering the current economic status of the U.S., inflation protection makes sense.
Keep It Simple
Don’t accept costly add-ons, such as coupling the annuity with long-term care insurance or life insurance. These add-ons will only increase the cost of the annuity and make it difficult for you to compare insurance companies.
Don’t put all your eggs in one basket. You may want to consider spreading your annuity purchase among three or more insurance companies to lessen your exposure to insurance company bankruptcy. For instance, assuming that you have about $300,000 to invest in an annuity; for every insurance company, you should get quotes on investing $100 grand, $200 grand, and $300 grand. If you invest your money in two or more companies, your total revenue might not be much less than investing all your money in one company, and you will have more peace of mind. Check to see if your state has a guarantee association that can add up to $250,000 of protection per account to protect you against insurance company bankruptcy. Most states have their own website, just Google your state name and the words guarantee association for state specific information and coverage.
Ask How Long the Annuity Quotes Are Valid
Annuity rate quotes usually have an expiration date (i.e. seven days, 14 days, etc.). A lot of insurance companies today will accept your application without funding and locking in the quote. But, you will be given up to 60 days to fund the contract.
Ask if Your Health Status will Affect Your Annuity Application
If you have a serious health condition, be sure to mention that in your application form. You may be qualified for a medically underwritten immediate annuity which will pay you a greater amount per month.
Ask What Will Happen to Your Premium Payment or Income Stream If You Die Too Early
When it comes to life only immediate annuities, the amount you paid for your immediate annuity is forfeited upon your death. But, most annuity companies nowadays offer optional riders that return the remaining unused premium dollars when you die prematurely. Thus, don’t forget to ask the refund options when you gather quotes.
Read the Fine Print
As with any crucial financial decision, it’s advisable to carefully read the fine print before you sign the dotted line. Carefully review the annuity quote or illustration. If you have any questions or concerns, be sure to address them with your agent before you purchase the immediate annuities. Keep in mind that you can’t change your mind once you’ve made the purchase.
Know that whatever your decision is, your satisfaction is always guaranteed! You have ten days (or one month, in some states) from the day your contract is sent to you to request that the insurance company refunds your full premium to you. No questions will be asked. This is known as the “free look” period, during which you can have a lawyer or a family member review the immediate annuities contract to make sure it gives you the coverage you need. For more info click here