WHAT DO I NEED TO KNOW BEFORE BUYING AN ANNUITY?
When you buy an annuity, you are entering into a contract with the insurance company. That means you should have an idea of what you want that contract to do before you start shopping. Do you need income? How much? Do you want principal protection? For what term? Because an annuity is a contract, you should know what the insurance company is contractually guaranteeing. If you are not happy with the contractual guarantees, you shouldn’t buy the annuity. Schedule time with us and we can help you understand the fine print.
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Before you purchase an annuity, you should know what you want the annuity to do for you. An annuity is a contract between you and the insurance company.
Remember, insurance companies don’t get the big fancy buildings by giving away more than they are contractually obligated to give you. If you are looking for safety or a steady stream of income, then an annuity is a solid option.
Insurance companies don't get their big fancy buildings by giving away more than they are contractually obligated to give you
Annuities have surrender penalties and market value adjustment charges so moving money out of an annuity before the surrender period can be a costly move, so before buying an annuity, determine what you need and then find the insurance company that will meet that need for the lowest premium.
Before buying an annuity you should also know that the guarantees are based on the insurance company’s ability to pay. So the insurance carrier’s credit rating is crucial, especially if you are buying a lifetime income product.
If you buy a lifetime income annuity from a poorly rated company in financial distress, the guarantee doesn’t mean much. If the insurance carrier holding your annuity goes belly up, your income stream or the money you moved out of the market for protection may also go belly up.
The longer your annuity surrender charge lasts, the higher the credit rating of the insurance carrier should be. For example, if you purchase a 3-Year MYGA, you may be comfortable with a B++ rated carrier.
But if you are buying a lifetime income policy, you should consider an insurance carrier with a higher credit rating because it may need to last for thirty years or more.
Just like the insurance company is not going to give you more than they are required to give as outlined in the contract, your insurance agent is a salesperson who will earn a commission of the sale of your annuity. Many annuity agents will tell you things that are not in the contract. If something sounds too good to be true, ask for it in writing.
Most of the time, the insurance companies pay your agent the commission upfront, which means there is no financial incentive for your agent to help you after the contract is issued.
That’s why it is imperative that you understand the contractual guarantees, because that’s what you should expect to get. Your contract is with the insurance company, not your annuity agent, and your contract is your best defense.
Depending on your state, you will have a short window of opportunity to cancel your policy after you receive the contract. If your annuity agent cannot explain every part of your contract, you have the wrong contract and/or the wrong annuity agent. Understand your annuity contract.