Is An Annuity Right For You? I.I.I. Video and Podcast Can Help You Figure It Out

Sep 24, 2009, 09:26 ET from Insurance Information Institute

Although Not Right for Everyone, Annuities Can Provide Financial Stability

NEW YORK, Sept. 24 /PRNewswire-USNewswire/ -- In order to help consumers better understand annuities and how they fit into retirement planning, the Insurance Information Institute (I.I.I.) has created a video podcast outlining the most important questions consumers need to ask themselves before they purchase an annuity.

An annuity is an insurance product intended for long-term financial objectives. There are several different types of annuities -- some guarantee principal and a minimum interest rate plus the possibility of additional interest; others invest in the stock market and provide variable returns.

Annuities are regulated by state insurance departments, and variable annuities are also regulated by the U.S. Securities and Exchange Commission. Insurers are required to take various customer characteristics into account before suggesting a suitable product. State laws also have what is called a "free look" period, usually from 10-30 days, during which an annuity can be returned for a full refund with no strings attached.

"Annuities provide powerful benefits, including tax advantages, but they have limitations as well. Whether or not an annuity is right for you will depend on several factors such as your age, your health and how much money you have in the bank," says Dr. Steven Weisbart, senior vice president and annuities expert at the I.I.I.

If you are thinking of buying an annuity, the I.I.I. suggests that you ask yourself the following questions:

  1. Am I comfortable with the risks involved? Annuities (like other investments) involve several kinds of risks that go along with their attractive features. For example, variable annuities are often invested in pools of common stock and can lose value quickly and sharply. If you are not comfortable with the idea that your annuity money could shrink, don't buy a variable annuity. On the other hand, fixed annuities pay a steady, but generally lower, rate of return, making them a better choice for conservative investors who value safety and stability -- such as people approaching retirement who want to shelter their assets from the volatility of the stock market. Before buying an annuity, you should understand its risks and be willing to accept them.
  2. Do I have an emergency fund? An annuity is meant to be kept untouched for the long-term, so if you have an emergency need for funds, don't expect to get the money from your annuity. If you take money out of an annuity, there may be a penalty called a surrender fee or a withdrawal charge. Some contracts may permit you to pull out a portion of the funds annually, usually up to 10 percent without a surrender charge. Ask your agent or insurance company representative about this feature before you invest your money in an annuity. And, before you consider buying an annuity, make sure you have a fund you can tap at any time, ideally equal to a minimum of three-months' income.
  3. What will I be charged, or what benefits will I lose, if I withdraw my money early? Early withdrawal conditions depend on the annuity. Shop around and be careful, because even different annuities from the same company have different conditions and different early withdrawal charges. Because annuities are meant to be kept for the long-term, and because financial and personal circumstances change over time, you might want to withdraw money from the annuity early. The shorter and less restrictive the withdrawal provisions are, the more flexibility you will have in the future.
  4. What happens to the money when I die? If you buy an annuity you will be putting a lot of money into it. Do you want your heirs to get that money if you die during the term of the annuity? There are several different options. Some continue to pay out to beneficiaries and others do not. You will want to know before you buy.
  5. Am I sure that this annuity is good for someone of my age, health and financial situation? As noted above, annuities are meant for people with long-term (at least seven years) financial plans. If your health, age, and financial situation do not suggest that you have a time horizon this long, maybe an annuity is not for you. Discuss your particular situation with a financial advisor before deciding whether to buy an annuity -- another investment vehicle may be more appropriate.
  6. Am I buying from a company that is financially sound and licensed to do business in my state? Before buying an annuity, contact your state insurance department to see whether it offers an annuity buyers guide for your state. And check with independent rating agencies such as A.M. Best or Moody's to determine the financial health of the insurance company from which you are buying the annuity. Very few annuity companies get into financial trouble, but that does not mean their track record is perfect. If you do some checking before you buy, you will be more likely to avoid problems with your company in the future.

In order to help consumers better understand annuities, the I.I.I. has created a video news release: Is an Annuity Right For You? There is also a video podcast: Six Questions to Ask Before You Buy an Annuity. It can be viewed on a computer or downloaded to a PDA for easy reference before meeting with an agent or financial advisor.

The podcast can also be downloaded from iTunes. Type "Insurance Information Institute" in the search box, then click on the red I.I.I. logo.

Reporters who would like a DVC Pro or Beta hard copy contact: Susan Stolov at 202-638-3400 or email

For more information about annuities, go to the I.I.I.'s Annuities section.

The I.I.I. is a nonprofit, communications organization supported by the property/casualty insurance industry.

SOURCE Insurance Information Institute