Life Insurance Companies and Annuities
A big worry for many facing retirement is the possibility of running out of money. But the annuity is one investment product that can help ensure there are funds available, regardless of how long your retirement turns out to be.
The main difference - and many will say the main advantage - to an annuity is that it allows for access to life insurance funds during life, and not upon a policy holder's death, like with traditional life insurance policies.
What Is An Annuity?
An annuity is, essentially, a conversion tool. A contract between the life insurance company and the individual, an annuity allows the lump sum of insurance benefits to be converted into monthly payments.
Who Should Consider An Annuity?
Annuities should be considered by anyone who is looking for a safe, low-risk place to put their retirement money. However, it shouldn't be the only place one puts their money. Having personal savings and vehicles like the 401k are also highly-recommended methods to securing adequate retirement income.
What Types Of Annuities Are There?
Annuities are available in four basic types: deferred, variable, fixed and immediate.
The deferred annuity will allow for monthly payments to occur, but at a later time, which gives the investments time to grow. The variable annuity's payments will vary according to how the annuity's investments perform in the market. The fixed annuity provides a set amount in each payment, with payments occurring over a specific period of time. And the immediate annuity's payments begin as soon as an annuity payment has been made.
Pros and Cons Of Annuities
Many of those who consider annuities do so because of their many advantages. The ability to secure steady retirement income is enough to bring much peace of mind to those who are worried about their financial security.
Another benefit of the annuity is its ability to help the owner accumulate assets, which can either be withdrawn prior to retirement, borrowed from the annuity or the remainder presented to beneficiaries upon the reading of a will.
In most states, the possibility than an insurance company should become unable to pay claims or goes bankrupt is covered by funding that will cover claims.
Unfortunately, there is not much that can be done in the event of extreme inflation, or if a significant emergency occurs. Both can quickly reduce the purchasing power of your annuity payments.
And although an annuity may look like a good way to secure retirement funds, a second look may reveal hidden fees that can significantly impact the amount of your payout. Fees can be a detriment any time you need funds from your annuity, such as if you need funds early in your contract, but don't have them due to fees having taken a large amount of money from your premiums.
Annuities can result in your outliving your payments, due to the fact that they are tied to the asset value you have accumulated. For example, having no choice but to accept a low monthly payment rate in order to ensure payments for life could mean that you don't have enough cash from your annuity to meet your monthly financial needs.
Evaluating Annuities
Because annuities are much more complex than they may first appear, it's important to understand all of the risks and benefits before you decide that they are the right choice for you. Some of the factors which can affect your decision include:
- Tax advantages when compared to other retirement vehicles;
- Varying fees like commissions and surrender charges;
- Financial stability of the insurance company offering the annuity.
The best way to evaluate all of the information surrounding annuities available from life insurance companies is to get the advice of a certified financial planner. This kind of professional will be the most likely to give you honest information about which annuity may work best in your situation.
The main difference - and many will say the main advantage - to an annuity is that it allows for access to life insurance funds during life, and not upon a policy holder's death, like with traditional life insurance policies.
What Is An Annuity?
An annuity is, essentially, a conversion tool. A contract between the life insurance company and the individual, an annuity allows the lump sum of insurance benefits to be converted into monthly payments.
Who Should Consider An Annuity?
Annuities should be considered by anyone who is looking for a safe, low-risk place to put their retirement money. However, it shouldn't be the only place one puts their money. Having personal savings and vehicles like the 401k are also highly-recommended methods to securing adequate retirement income.
What Types Of Annuities Are There?
Annuities are available in four basic types: deferred, variable, fixed and immediate.
The deferred annuity will allow for monthly payments to occur, but at a later time, which gives the investments time to grow. The variable annuity's payments will vary according to how the annuity's investments perform in the market. The fixed annuity provides a set amount in each payment, with payments occurring over a specific period of time. And the immediate annuity's payments begin as soon as an annuity payment has been made.
Pros and Cons Of Annuities
Many of those who consider annuities do so because of their many advantages. The ability to secure steady retirement income is enough to bring much peace of mind to those who are worried about their financial security.
Another benefit of the annuity is its ability to help the owner accumulate assets, which can either be withdrawn prior to retirement, borrowed from the annuity or the remainder presented to beneficiaries upon the reading of a will.
In most states, the possibility than an insurance company should become unable to pay claims or goes bankrupt is covered by funding that will cover claims.
Unfortunately, there is not much that can be done in the event of extreme inflation, or if a significant emergency occurs. Both can quickly reduce the purchasing power of your annuity payments.
And although an annuity may look like a good way to secure retirement funds, a second look may reveal hidden fees that can significantly impact the amount of your payout. Fees can be a detriment any time you need funds from your annuity, such as if you need funds early in your contract, but don't have them due to fees having taken a large amount of money from your premiums.
Annuities can result in your outliving your payments, due to the fact that they are tied to the asset value you have accumulated. For example, having no choice but to accept a low monthly payment rate in order to ensure payments for life could mean that you don't have enough cash from your annuity to meet your monthly financial needs.
Evaluating Annuities
Because annuities are much more complex than they may first appear, it's important to understand all of the risks and benefits before you decide that they are the right choice for you. Some of the factors which can affect your decision include:
- Tax advantages when compared to other retirement vehicles;
- Varying fees like commissions and surrender charges;
- Financial stability of the insurance company offering the annuity.
The best way to evaluate all of the information surrounding annuities available from life insurance companies is to get the advice of a certified financial planner. This kind of professional will be the most likely to give you honest information about which annuity may work best in your situation.