Buying Insurance

Lesson 5: Annuities

Shopping For An Annuity

You should shop for an annuity in much the same way you would shop for any other financil product. The amount of interest annuity companies credit to money on deposit varies from company to company. Ask your agent for at least a ten year summary of the interest that the company has paid on annuities. (Buyer beware: avoid the "gotcha" annuities that advertise high interest the first year. These are likely to drop well below market for the next several years). Companies also vary in the kind and amount of charges (insurance jargon:load) they levy against deposits as a cost of marketing and administration. There can also be considerable variation in the interest rate (insurance jargon:AIR) that companies use as they calculate how much they will earn, and consequently how much they can share with you, on the money they still have each month not yet paid out. All of these factors impact the size of the payment you will receive no matter which payout option you select. So what does all this mean to you? Specifcally, the higher the interest the company pays on annuity money during the accumulation phase, the lower the charges (load), and the higher the assumed interest rate to be earned (AIR) during the payout period, the better for you. These factors are not easy to discover, but if you ask the right questions, the information is usually available.

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