Guest Post: 10 Things to Know About Annuities

Today I have a guest post from Lisa Cintron from OnlineAnnuityRates.com.

Before deciding on any given investment, it is important to understand the implications. Annuities are great for some, while other options may be preferable depending on the circumstances.  It is important to be informed so that you can make the best choice for your situation. Here are ten things that most people are not aware of when it comes to annuities.

1. Security

Unlike a CD, annuities are not protected by the FDIC. However, they are protected by the billions of dollars of assets owned by the insurance corporation. In addition to this, the interest rates are guaranteed, so if the market takes a downturn, the investment is protected from any losses, and in fact continues to grow.

2. Tax Benefits

An annuity can be thought of as earning triple compound interest. This is because it earns interest on the principle, interest on the interest, and finally interest on the taxes that would have been paid otherwise. Unlike several other kinds of investments, including certificates of deposit, there are no taxes incurred while the investment is earning interest. The taxes are incurred once payments are being made, meaning that taxes do not hinder the growth of an annuity.

3. Competitive Interest Rates

In most cases, the insurance company will set the interest rate for a deferred annuity each year. In most cases, it will be either one or two points higher than a CD. What this means is that the interest rate is not only higher, but it accumulates faster due to its tax deferred status. Many deferred annuities offer a rate that is guaranteed for a certain number of years. This means if you expect the interest rates to fall, you can lock them in today to protect yourself.

4. Guaranteed Interest

Most insurance companies will offer a guaranteed minimum interest rate of 3%. This means if you have reached the end of your annuity contract, and you have not yet earned 3% on the investment, the insurance company will apply this rate. Your investment is guaranteed to increase in value.

5. Withdrawals

Most people don’t understand how liquid an annuity really is. Unlike a CD, most annuities can be withdrawn up to 10% with no fees. If you move into a nursing home, most of them will have no limit on the amount that can be withdrawn. The same is true if you are diagnosed with a terminal disease.

6. Surrender Charges

While there are charges incurred if too much money is withdrawn from an annuity, these charges are reduced over time, and may in fact disappear under certain circumstances.

7. Probate

Depending on the state, an annuity is not considered a probate asset, which means that as long as a beneficiary is named, there are no delays or fees preventing your beneficiaries from receiving funds, if an annuity with beneficiary privileges was chosen.

8. No Annual Charges

Mutual funds and other investment organizations will sometimes charge a payment each year. In contrast, there are no fees required to invest in an annuity.

9. No Sales Charges

Once money is placed into an annuity, all of the money is invested. There are no sales charges up front.

10. Creditors

Once again depending on the state, the money in an annuity can not be taken away by creditors in case your financial situation gets worse.


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