How to Figure Out Annuity Rates

By • Oct 14th, 2009 • Category: Retirement

If you’re thinking about investing in annuities, you might be a bit intimidated. Interest rates are an essential aspect of ranking annuities. The labyrinth of data that you’ll encounter can be very discouraging, and create doubt about your choices.

Immediate annuities

There are some key interest rate components to focus on that should filter out the irrelevant information and make the decision process quite a bit easier. Since variable and equity-indexed annuities float with the stock market, a broad focus on interest rate components is irrelevant. Instead, let’s talk about fixed annuities.

 How to Figure Out Annuity Rates
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There are four key interest rate components in an annuity contract. These points will assist investors in determining where they should concentrate their efforts.

Base Guaranteed Rate: The annuity will grow by at least this amount. With the exception of a CD kind of annuity, which is assured of a better rate over the life of the agreement, the base guaranteed rate is usually between 1% and 3.5%.

- Current Rate : Annually, the insuring company will fix a rate that will be applied to contracts that are in-force. This keeps competition alive in the insurance industry. Each company is going to declare a rate based on portfolio performance, future business projections and competitive comparison. A decent current rate will tell you whether or not the organization is financially sound now and in the future, when compared with other companies.

- Bonus Rate : A lot of contracts will add this ‘bonus rate’ to get you to buy in. Some annuities will present exceedingly high bonuses. A few things need to be addressed when talking about bonus rates. Some of these rates are only credited at contract maturity which adds an additional surrender charge if the annuity is cancelled early. Large bonus rates will usually prolong the period of surrender as they add an expense for the company. So, essentially, bonus rates really aren’t much of a bonus after all. Be sure to validate every contract component until you’re certain about them, before you consider any bonuses.

- Yield To Suddender : This rate represents the effective return rate as projected until the end of your contract. It is also the single most important interest rate to consider. The yield to surrender should be revealed by your agent in both current and guaranteed minimum rates. Calculating this yield will objectively determine the validity of a bonus rate.

Rates:Immediate annuities

There are a few other items you should think about when examining annuities in conjunction with the above interest rate elements. These include a company’s renewal rate history and bailout rates.

Renewal Rate: Renewal rate history is an excellent indication of a company’s long-term performance. You can match the economic cycles of the past to their rates, and gain an understanding about how each company reacted to changing market situations. You should also think about inflation and deflation when you are in the market to invest a large amount of cash for a significant amount of time. By scrutinizing past performance, you can see how an annuity will likely perform in the future no matter what economic conditions apply.

- Bailout Rate : A bailout rate is not offered by all annuities. Only extremely sound organizations offer a bailout rate in their superior annuity agreements. The bailout rate is generally a bit more than the base guaranteed rate. It allows an investor to cancel the contract free of penalty if the declared interest rate is at or below the bailout rate. This offers additional freedom to the contract holder and opens up options for placement of the funds without the usual cost of surrendering the annuity.

These are the fundamental aspects of annuity agreements that investors must think about when comparing interest rates. There are a large number of components to understand before one invests in annuities, and annuity rates are only one small aspect of the larger picture.

Annuities are flexible enough to grab a large portion of the financial planning industry. Choosing a product, however, presents a unique challenge because of the hundreds of products a person has to consider.

We have provided an outline of what you need to know to choose the best product for you at Come to our website to view the essential agreement elements and to get the unbiased evaluation you will require to determine the right annuity for you.

Make an informed decision about annuities. Get the Free Annuity Report at – annuity rates

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