I studied the lives of great men and famous women, and I found that the men and women who got to the top were those who did the jobs they had in hand, with everything they had of energy and enthusiasm.—Harry Truman, American president.
Over the past five years, there has been a significant increase in annuity sales to senior citizens. However, as annuity sales have risen, so has a sense of confusion among consumers. This is due, in part, to questionable or deceptive sales practices employed by companies and agents looking to take advantage of uninformed potential purchasers. It is extremely important, when considering whether or not to buy an annuity, that you take the necessary precautions in order to make an informed decision that is best for you.
Here is some important information from the National Association of Insurance Commissioners that may help you if you are considering the purchase of an annuity.
An annuity is, simply, a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are often bought for future retirement income, and can pay an income that can be guaranteed to last as long as you live.
You should think about what your goals are for the money you may put into an annuity, as well as how much risk you are willing to take. Ask yourself the following questions:
How much retirement income will you need in addition to what you will get from Social Security and pension? Will you need that additional income only for yourself or for yourself and others?
How long can you leave money in the annuity and does the annuity let you take out money when you need it? Is this a single premium or multiple premium contract? For a fixed annuity, what is the initial interest rate and how long is it guaranteed?
Do I want a fixed annuity with a guaranteed interest rate and little or no risk of losing the principal, or do I want a variable annuity with the potential for higher earnings that aren’t guaranteed, and the possibility that I may risk losing principal?
Can I get a partial withdrawal without paying surrender or other charges, and is there a death benefit?
There are several different types of annuities, a fact that helps to increase confusion. A single premium annuity is one where you pay tine insurance company only one lump-sum premium payment. A multiple premium annuity is one where you pay the insurance company multiple premium payments. An immediate annuity is one where income payments to you start no later than one year after you pay the premium.
A deferred annuity is an annuity where income payments to you start many years later. A fixed annuity is an annuity where your money, less any applicable charges, earns interest at rates set by the insurance company or in a way specified in the annuity contract. A variable annuity is one where the insurance company invests your money, less any applicable charges, into a separate account based upon the risk you want to take. The money can be invested in stocks, bonds or other investments. If the fund does not do well, you may lose some or all of your investment.
An equity-indexed annuity is a variation of a fixed annuity where the interest rate is based on an outside index, such as a stock market index. The annuity pays a base return, but it may be higher if the index goes up.
Heads up. As with any insurance product, always review the contract and be sure you understand the terms and conditions, as these vary from contract to contract. If you are uncertain what something may mean, ask a trusted friend or advisor to help you review the paperwork. Additionally, ask the agent and/or the company for an explanation of anything you do not understand. Write down the explanation in language clear to you so that you can refer to it later in the event you forget the details. Do this before any “free look” period ends.
The “free look” period gives you a set number of days to look at the annuity contract after you buy it. If you decide during that time that you do not want the annuity, you can return the contract and get all your money back.
Please avoid being fooled by deceptive sales practices. Watch for the following red flags, which serve as warnings of possible deceptive sales practices: High-pressure sales pitch: If a particular group or agent has contacted you repeatedly, offering a “limited-time” deal that makes you uncomfortable or aggravated, trust your instincts and steer clear. Quick-change tactics: Skilled scam artists will try to prey on your “time fears.” They may try to convince you to change coverage quickly without giving you the opportunity to do adequate research. Unwilling or unable to prove credibility: A licensed and honest agent will be more than willing to show adequate credentials.
Remember the old cliché – if it seems too good to be true, it probably is. If you suspect you’ve been a victim of deceptive sales practices, or you have a specific question and can’t get the answers you need from an agent or the insurance company, contact the state insurance commission, www.mdinsurance.state.md.us.
Thanks for reading. Stay well. See you next week