Annuity Companies: Finding the Best One
Annuities are offered by insurance companies, both large and small. There are a number of things to consider when searching for a quality company with which to invest hard earned dollars. The following questions shed light on important points to consider when shopping companies.
Do they offer the type of annuity I need? Are the investment options sound and do they meet my needs? Will my money be safe with them? Will they be able to honor the commitments and guarantees when I need them? Is there a great incentive for doing business with them? Is that incentive a distraction from a lesser quality product?
Balancing Different Risks
Every choice made regarding finances and investments will have pros and cons. There are certainly more types of risk to consider other than the risk of losing money. What each investor needs to choose is which risks are most important to avoid or reduce and which risks can be tolerated. There is a constant balancing act with differing types of risks.
Consider the following questions that compare different risks: Does a significant deposit bonus make it worth doing business with a lower rated company? Should I sacrifice a fraction of a percentage in interest for a higher rated company? Are the investment options more important than the contract details? Is a longer surrender period acceptable if I want certain guarantees?
The numerous factors and differences, both minor and major, will play a role in choosing the best annuity company. What matters most is that the company chosen satisfies the needs and risks most important to the annuity owner and their unique circumstances. Everyone views various types of risk differently.
Does the Company Offer What I Need?
The first question to consider is whether or not the company offers the type of annuity needed. For example, if someone is shopping for a variable annuity with a lifetime income rider and spousal protection, well, not all companies offer that. The choices for this type of contract will be limited to the companies that offer such contracts.
All insurance companies offer slight variations on certain aspects of each annuity type. Again, determine what will be most important with regard to the type and details of the contract, then investigate which companies can meet those needs. During a holistic financial planning session the discussion will uncover the real needs and risk tolerance, ultimately pointing in the direction of a certain type of annuity and company best suited for the investment.
Annuity Investment Options Matter
Just as important as selecting an annuity contract is the quality of investment options within the separate accounts. The ultimate goal is for the account to grow at the maximum rate balanced with the risk tolerance of the owner, falling back onto contract guarantees when growth is stifled. To achieve the primary plan of growing the asset, sound and diversified investments must be available within the annuity.
Fixed annuities are less impacted by these factors; however the crediting rate and quality of bonds present within the portfolio are important. If a fixed annuity with the highest possible crediting rate is right for an investor, they should be prepared for the risks associated with lower grade bonds or the smaller insurance company that make such a rate possible.
Regarding index annuities, the only concern is to be certain that the investments mirror the indices, will be rebalanced appropriately, and will reflect the lower expenses associated with unmanaged funds.
With variable annuity contracts, it is equally important to consider the funds and money management options in addition to the contract itself. Utilize the information and recommendations of financial professionals as well as independent research to dial in on solid choices. Be leery of annuities that restrict offerings to proprietary funds or few choices. Also, be aware of options to shift investments as the fund choices may change over time.
Don't Just Shop, Implement a Solid Retirement Strategy
Purchasing an annuity is a big decision. Online research is a good start, but prudent investors should discuss all their options and risks with an independent financial advisor. Request a free, no-obligation consultation today, along with a report of current rates on brand-name annuities.Speak with an advisor over the phone about annuities for FREE.
Is My Money Safe with the Company?
Three considerations exist regarding the safety of money with an insurance company. The solvency of the company itself is the primary concern. There are some protections against mismanagement and business risk through the SIPC (Securities Investor Protection Corporation). The second consideration is the ‘claims paying ability’ of the company. This refers to the ability of the insurance company to pay its future obligations through contracts and policies. Thirdly, the credit ratings of the securities must also be rated and their strength considered.
In addition to reviewing public company financials and annual reports, there are independent agencies that provide information and quantified ratings to help consumers. AM Best is one such company providing ratings for both the financial strength and the securities within the separate accounts.
AM Best Ratings Explained
The AM Best is a third party and provides independent ratings, research, and information for financial companies. For measuring or rating the financial strength of a company they use a system similar to a schools traditional grading system. An ‘A’ is the highest rating, a ‘B’ the second tier, and so on with plusses and minuses added to further differentiate within a tier.
As an example of the rating system, the MetLife Inc. (insurance, annuities division) has received an ‘A+’ rating for financial strength. Only an ‘A++’ could be better, and an ‘A+’ is considered a ‘superior’ rating score. Other potential ratings are categorized as follows:
- A = Superior, Excellent
- B = Good, Fair
- C = Marginal, Weak
- D = Poor
- E, F, S = Being Supervised, In Liquidation, Suspended (really bad!!!)
Some other examples of superior rated companies would be New York Life, which received an ‘A++’ rating in August of 2009 for its financial strength. In 2009, ING and its U.S. insurance operations were given an ‘A’ rating. Both companies fall into the excellent or superior category for financial strength.
AM Best rates the quality of the bonds and debt securities within the separate accounts of annuities, which is also known as the issuer credit rating. The system is again similar to the scholastic system of letter grades. The slight variation is that the rating is stated as three letters, with pluses and minuses inserted to indicate whether a security is near the top or bottom of the category. An example of the best rated securities would be ‘a++’, where ‘bbb’ would be marginal and a ‘ccc’ would be a weak rating.
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