Annuity Rates Comparison: What to Look Out For
When considering the purchase of an annuity plan, investors must make a careful annuity rate comparison. It has become relatively easy to perform an annuity rate comparison because of the availability of online tools and annuity information websites. Insurance firms continue to offer new types of variable annuity products, so due diligence on the part of the investor is key to a successful strategy.
The most attractive feature of an annuity is that the money in the account is converted to a lifetime stream of income after the contract owner reaches a certain age. However, the very fact of annuitizing income - or converting an amount of money to an income stream paid out over a lifetime - most annuity contracts will not allow owners to take out large withdrawals if they need to. Additionally, most annuities may not allow contract owners to designate beneficiaries to receive death benefits if the owner dies during the annuitization phase. The purchase of term certain annuities can prevent this scenario, but they do not offer a guaranteed income for life.
Researching the various annuity options can take a lot of time, and investors can make several mistakes as they think about purchasing an annuity. The biggest mistake may be waiting until the last minute to begin comparing annuity rates and neglecting to consider critical features. For example, it is important to think about inflation as during the comparison of rates and premiums of various products. Investors are advised to request an inflation rider. There are many ways to get advice about annuity rates and comparing annuity quotes. With appropriate planning, investors can avoid common mistakes.
Some of the confusion surrounding annuity rates results from the wide variety of annuities available. Annuities may be single-payment or flexible-payment arrangements, fixed or variable plans, or deferred or immediate annuities. The long-term nature of annuities means that investors must understand how each plan works and what they options are. The first step in comparing rates and features of an annuity is to consult with a financial professional.
It is also important for investors to remember that they can mix and match annuity options as they compare rates. They should determine the annuity features that are most important to their unique situations and then select a plan that offers those features before comparing contract rates.
Another thing to remember is that many annuities provide an attractive rate at the beginning, but later on, investors begin to see the interest rate fall. Few investors know that it is possible to do a competitive review of an existing annuity plan and to look for a better rate if they are not satisfied with what they are receiving. An older and potentially under-performing annuity can be traded in for a plan that meets their needs better - without the need to pay any expenses out of pocket or incurring any current tax.
With a "1035 tax-free exchange," which is allowed under the Internal Revenue Code, investors can just move their money from one annuity into another one. Because they are not spending any money with the withdrawal, the earnings do not need to be recognized as current income. So investors can move their annuity money into a better plan without sacrificing their tax-deferral benefits.
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