Who to Get Indexed Annuities From

Annuities are a practical solution for people who are seeking  a secure retirement as they are the only investment vehicle that can provide a guaranteed stream of lifetime income.  For people who have lost their tolerance for risk, fixed annuities, with their minimum rate guarantees are appealing, however, they offer limited growth opportunities. Variable annuities are also a source of a secure income stream, however, there is risk associated with the managed accounts that invest in stocks and bonds.  Although some variable annuities offer a fixed account with stable returns, their high expenses may not warrant investing in that option.

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Indexed Annuities Explained

An indexed annuity may very well be the ideal option for the shell shocked investor who would like the opportunity for greater growth but not at the expense of safety and security.  With rates of return tied to a broad stock index, like the S&P500, there is obviously the potential to earn higher returns.  Downside risk is mitigated with a floor rate which is the minimum rate that the insurer will pay regardless of the performance of the stock index.  There is also a cap on earnings that limits the amount of upside but that can go as high as 15% in some cases.

This same potential for upside is applied to the income payments after the indexed annuity is converted to a lifetime income stream.  The payout rate is adjusted each year to reflect the performance of the stock index up to a cap and never below a minimum guarantee. 

While the potential returns that can be generated by an indexed annuity may not be enough to enable investors to totally recoup their stock market losses of the last couple of years, it does offer the opportunity for their money to work harder for them in all aspects of their retirement planning. More importantly, the minimum guarantees ensure that there won’t be any sleepless nights.

One thing that could very well cause someone to lose sleep is the prospect of wading through the massive amount of product alternatives that are available from the dozens of insurers that offer indexed annuities. This begs the important question of who to get indexed annuities from in a sea of offerings.

The best source from which to get indexed annuities would be an independent insurance broker.  Sales agents who represent specific insurers may not have access to the broadest selection of indexed annuity product and they may have a bias towards the company they represent. 

An insurance broker, however, represents you and works with many companies. Not all insurance brokers are the same and so it is important to apply strict criteria when choosing the one with whom to work. With this as your guide, you should be able to narrow your search quickly and with confidence:

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What to Look for in an Insurance Broker

Product Selection

Insurance brokers work with many insurers so they are not necessarily biased towards a particular product.  The fact that a broker works with more companies than another broker does not make him a better choice. It is important that there be a good range of companies and that the majority of them rate highly for their financial strength and stability. If you see that there are a lot of B rated companies on his list, that is not a good sign.  It is recommended that you consider products only from A+ rated companies. You should be leery of brokers who work with limited number of A+ rated companies.

Qualifications and Experience

All brokers are insurance licensed and that is where the similarities end.  Your goal is to work with someone who can find the best match of product to your situation and then, be able to explain how it will benefit you.   Length of time in the business is important but does not necessarily speak to qualifications. Brokers have the opportunity to advance their knowledge through accredited colleges such as the College for Financial Planning and the American College.  Brokers who forgo obtaining credentials such as CFP, CLU, or ChFC are probably not interested in providing the best possible service for their clients.

Client-Centric

You should meet with a few brokers so you can interview them and establish their credentials and review their list of carriers. In that meeting, if you know what to look for, you will quickly discover where their true interest lies – with you or with their pocket book.  Indexed annuities are complex instruments that need to be explained in the context of your specific situation.  The broker who begins the meeting by asking a series of questions about your needs, priorities, preferences, and risk tolerance, before any discussion on products is client-centric.  If the broker greets you in his office with a product brochure, walk away.

Don’t be afraid to ask for references. Your broker will be well compensated (you don’t pay their commission, the insurer does),so make him earn your business.  Let him know that he is being weighed and measured and that you don’t make your decision lightly.  With this as your guide for selecting who to get fixed annuities from, you will be in control and on your way to finding the best product for you.

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