What Are Annuities?
An annuity is a contract between an insurance company and an individual, often an investor thinking about retirement, in which an upfront lump sum is paid by the individual to the insurer in order to receive future or immediate payments at regular intervals. There are many types:
Immediate Annuity. You pay a lump sum up-front to the agency. You immediately begin to receive regular payments from the agency, often for the rest of your life.
Deferred Income Annuity. These are like an immediate annuity except that your payments begin sometime in the future.
Fixed Annuities. This annuity type is designed to accumulate tax-deferred money.
Variable Annuity. In this type, the potential profitability is tied to a specific market, often the U.S. stock market, by which returns vary from year to year.
When Are Annuities A Good Use For Your Money?
Annuities can useful if you are buying them for sensible reasons. An annuity can make sense if:
It has been completely understood and is a part of a total, long-term financial plan
You know exactly how the particular annuity contract you are buying works
The fees and other charges are minimal, and
You know exactly how it complements your overall portfolio that is not met by other components you already own
What Are the Downsides to Annuities?
In many cases, however, an annuity may not be the best idea. In many cases, they come with fairly high fees and other charges. Here are a few of the most common:
Management Fees. These are charges if the portfolio underlying the annuity basket that the company offers is professionally managed.
Rider Charges. If you add a rider for specific features that you deem important it will cost you.
Surrender Charges. Some insurance companies force you to pay a surrender charge if you want to get out of your contract.
If you’d like more details about annuities, be sure to give us a call at Rushview Commercial Funding.