Elder
Law FAX -- April 24, 2006
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Education |
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Seniors: Educate Yourself on Annuities
The Los Angeles Times reported recently that sales of annuities
in the United States has exploded, particularly to seniors, as investment
brokers and insurance agents are selling them at a "furious clip,"
often using deceptive or high-pressure tactics.
As one elderly woman told the newspaper, after enduring a five-hour sales pitch, she bought an annuity from the sales person just to get him out of her house.
The National Association of Insurance Commissioners has published some tips for seniors (and others) that contains helpful and important information that will help people who are considering purchasing an annuity:
What is an Annuity?
An annuity is a contract in which an insurance company makes a series
of income payments at regular intervals in return for a premium or premiums
paid. Annuities are often bought for future retirement income.
Is an Annuity Right for You?
You should think about what your goals are for the money you may put into
the 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?
· Can I get a partial withdrawal without paying surrender or other
charges and is there a death benefit?
Types of Annuities
· Single Premium Annuity: An annuity where you pay the insurance
company only one premium payment.
· Multiple Premium Annuity: An annuity where you pay the insurance
company multiple premium payments.
· Immediate Annuity: An annuity where income payments to you start
no later than one year after you pay the premium.
· Deferred Annuity: An annuity where income payments to you start
many years later.
· Fixed Annuity: 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.
· Variable Annuity: An annuity 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.
· Equity-Indexed Annuity: 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.
Review Your Contract Carefully
As with any insurance product, always review the contract and be sure
you understand the terms and conditions, as these will vary from contract
to contract. Ask the agent and/or company for an explanation of anything
you do not understand. Do this before any free look period ends. This
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.
Tax Treatment of Annuities
You should consult a professional tax advisor to discuss your individual
tax situation.
Released by the NAIC Communications Department,
2301 McGee Street, Kansas City, MO 64108, 816.783.8003.
Elder Law FAX is published every other Monday by the Elder Law Practice of Timothy L. Takacs, with offices in Hendersonville and Cookeville, Tennessee. Visit us on the Web at http://www.tn-elderlaw.com. Copyright 2006 by the Elder Law Practice of Timothy L. Takacs. Would you like Elder Law FAX e-mailed to you free? To subscribe, please use the Elder Law FAX Subscription Form at http://www.tn-elderlaw.com/faxform.html.