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.

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 AnnuityStraightTalk.com 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 www.AnnuityStraightTalk.com – annuity rates

Annuities pros and cons

Yet, every so often, you’ll locate a great agent who will give you complete disclosure and the entire truth. Annuities definitely have disadvantages- the downsides of these products will change depending on the type of product chosen.

Annuities in and of themselves are not good or bad- each has certain characteristics that makes them either appropriate or inappropriate for a given individual. And yes, there are some bad annuity companies that I chose not to work with.

So, what are the downsides? I will analyze each product category and explain the main drawback of every one of them. Currently, there are definitely situations – A LOT of situations – where there are more benefits than negative things, yet that is not this article’s topic.

Immediate Annuities offer the highest payout of any income product and are attractive for that reason. The negative aspect: complete account value is given up to the business in return for income for a lifetime. That leaves your heirs high and dry. IF you surpass your life’s expectancy, you’ve succeeded. The company comes out ahead if you do not. If you pass away sooner than anticipated it can be a really raw deal.

Fixed Annuities are not a short-term cash investment. There is no apples to apples comparison with CDs. Parking your money in Certificates of Deposit would be excellent for small intervals. Fixed annuities do have advantages but need only be considered when the surrender schedule fits within your time horizon.

annuities pros and cons

Variable Annuities add another layer of complexity. The fees can get fairly high, an increase of up to 3% or higher, so it’s up to the investor to consider if these extras are worht it. You won’t have the same flexibility as you would with an IRA because variable annuities usually have fewer investment options. Perhaps the most troubling provision sold with variable annuities is the income guarantees. In many instances, bigger earnings and more active market involvement can be found in other places. It’s critical that your advisor understands the all of the details of the contract, because explanations of guaranteed income riders are so often incorrect.

Equity Indexed Annuities are even more difficult to interpret. If I were to make an educated guess, I would say that no more than 10% of the 325 products currently available are quality contracts. Due to the participation rates involved, an investor only gets a portion of the index return and the caps on rates limits your total possible return. Additionally, the contract fees may be pricey, similarly to variable annuities. Many companies make up for the upside market potential with miserably low guaranteed minimum rates or simply a principal guarantee with no growth potential. Be cautious, and do the necessary research. Another way around it does not exist.

Every product category suits the requirement of specific set of customers. You need to meet with an advisor who will thoroughly explain all the advantages and disadvantages of the contract you are considering.

Sad to say, far too many agents consider the commission first, rather than finding out what the client really needs.

I want you to have all the tools and knowledge possible before making a big financial decision. Check out the resources at www.AnnuityStraightTalk.com – annuities pros and cons

Annuities have received a lot of bad press recently, and much of it for good reason. Life insurance agents and securities brokers often foist annuities upon their clients without properly explaining them or ensuring that the annuities fit their clients’ needs. For more information refer to Top Financial advisors

Why? Because annuities typically pay handsome commissions to the salespeople. But does this mean that annuities are always bad? Given the right circumstances, fixed annuities and variable annuities could be the right financial vehicle for you.

What Are Annuities Anyway?

Annuities are life insurance products designed to provide supplemental income, mostly for retired people. The term “annuity” literally means “annual payment of allowance or income.”

Basically, annuities tend to work like this: Someone pays a set monthly premium, as with life insurance, for so many years. Then, when he’s done paying, he waits for a while. A few years later, he begins receiving monthly income.

The amount he is to receive, usually for the rest of his life, is generally much greater than the total amount of premiums he paid in.

Fixed Annuities – The Original Version

Fixed annuities work much like the example above. The key thing is that with fixed annuities, investors are guaranteed a set pay-out. Almost no other investment product guarantees anything, and that’s why fixed annuities are actually a form of insurance, not securities.

The big problem with fixed annuities is inflation. While the money you pay in premiums is generally less than you’re guaranteed to receive, when you adjust for inflation, you might be losing out. This is one of the reason annuities have gotten so much bad press recently.

Variable Annuities – New and Improved?

Variable annuities protect you against inflation risk by investing your premiums more aggressively. The downside? While variable annuities guarantee lifetime income, they do not guarantee how much that income might be. In fact, you could even lose money by investing in variable annuities.

For this reason, many of the more ethical financial advisors recommend that you buy a modest life insurance policy and invest the premiums you save into solid mutual funds.

To Be Fair – The Upside of Annuities

Theoretically, annuities could be a great investment vehicle. Rather than “throwing away” life insurance premiums, annuities can provide for a death benefit while simultaneously allowing your money to grow.

Also, when compared to mutual funds, annuities offer several advantages. For one, the money you invest grows tax deferred. This means that you will not be required to pay income tax on the funds invested into an annuity until you begin withdrawing money.
Go to Registered Financial advisors for more information.

Secondly, variable annuities do guarantee lifetime income, while theoretically at least, you could lose all of your money invested into mutual funds.

In practice, this is unlikely, but at least with an annuity you will be able to plan for the worst case scenario of a guaranteed lifetime benefit. The worst case scenario for mutual funds is $0.

Mutual Funds and Variable Annuities – A Side-by-Side Comparison

Maximum sales load: Mutual fund, 8.5 percent; variable annuity, no maximum. This means that unethical brokers can charge unsuspecting clients any sales charge that they want.

Pricing: Mutual fund, net asset value (NAV) calculated once per day; variable annuity, unit value calculated once per day. Mutual funds have the major advantage of being liquid – you can buy or sell them any business day of the year. A variable annuity is a life insurance product and is not liquid at all.

Share value: Mutual fund, depends on performance of the fund; variable annuity, depends on the performance of the “separate account,” in which a portion of premiums paid are invested.

Make Sure That Your Financial Advisor is Looking Out for Your Interests

If you feel that your financial advisor is more concerned with her own commission revenue than your financial well-being, head for the door and never look back.

Financial advisors are supposed to be professionals, not cheap salespeople. Like doctors and lawyers, their duty is to those whom they serve, not to the company that employs them or to their own paychecks.

Older individuals are especially susceptible to hotshot young brokers who think they can score a quick buck by unloading a junk product with a big commission.

Your best defense against this is to become as fully educated as you can about each investment product that’s recommended to you, and to find a financial advisor with references from people you know you can trust.

A Few Questions to Ask Your Advisor

If you’re ever dubious of a product your advisor is recommending, be sure to ask him how much commission he receives for selling it. Come right out and ask if he would recommend the product if the commission were half or one-third what it is.

Ask him what are some products that he recommends that do not provide such high commissions. And if you really want to rattle your advisor, ask him what score he received on the Series 7 exam. Ask him to show you his certificate proving his score.

Tell him that you’re considering a variety of advisors, and these are the criteria you’re using to determine which one is right for you. It’s important that he remembers that you are his boss, and that he is to put your interests ahead of his own regarding annuities. That’s what being a professional is all about. Visit Certified financial advisors for further information.