Annuity IQ

In order to know what annuity is best for your needs, you first need to understand the different types of annuities available. There are various different types of annuities available. There are 4 types of major Annuity contracts available; variable annuity, fixed annuity, index annuity and immediate annuities.

Knowing the difference between the 4 different types is crucial for you to find the annuity that is right for you. Here, at Annuity IQ, we concentrate on variable annuities as they are more complex and what we know best. We will discuss the 4 types of annuities available below.

variable annuity:

A variable annuity is one of the more popular investment vehicles in the market place. With a variable annuity you have all of the investment risk, but the insurance company may offer living benefits to reduce your overall risk. You will have the option of investing your money in sub-accounts (which are mutual fund clones inside of the variable Annuity). These sub-accounts will all have different objectives and risks and your rate of return will be dependent on how these sub-accounts perform.

A variable annuity will have different kinds of guarantees attached to them. The most talked about, and the most criticized, are death benefits. These death benefits guarantee your heirs either your initial investment back, high water mark (annual step-up death benefit) or account value whichever is greater minus any withdrawals. You may also purchase additional and completely optional death benefits such as; enhanced death benefits (this pays out either 25% or 40% on your earnings on the annuity to your heirs) or a compounding death benefit (this is a guaranteed increase in your death benefit every year, regardless of market performance).

Death benefits used to be a big reason why people bought variable annuities, besides the tax deferral. In recent years living benefits have become more popular and the main reason why people buy Variable annuities, besides the tax deferral. To learn more about living benefits please visit http://www.annuityiq.com/variable_annuity_free_book.html. Living benefits can guarantee current income, future income or your money back. Each living benefit meets a specific need and you should know how they all work before investing in any annuity contract.

Fixed annuity:

A fixed annuity is the simplest of all Annuity contracts. This type of contract allows you to invest, tax deferred, into a contract that is guaranteed never to go down in value. In other words the insurance company assumes all of the risks, not you. These contracts typically have a minimum guaranteed interest rate. The guaranteed minimum interest rate will vary from company to company and state to state. This minimum guarantee is typically 2.5% to 3% and is guaranteed for as long as you hold the contract. Some fixed annuities pay out “teaser” rates to get you to invest with that contract. Do not fall for the best “teaser” rate out there. Look at how the company continues to pay after the contract is issued. A good rule of thumb is if CD rates are at 3% and a fixed annuity is offering 8%, the renewal rate, or the rate you will get next year on the contract anniversary, will be horrible. Things that are too good to be true usually are.

Equity Index annuity:

Depending on who you talk to an equity index annuity is either the simplest investment in the world or one of the most complex, we vote for the latter of the two options. Basically, you will invest your money with an insurance company and the insurance company will guarantee you a portion of the indexes, typically the S&P 500, return. They guarantee no downside risk, in fact they guarantee a minimum rate of return, incase the index does not perform.

How exactly do they work? Good question and that answer will vary widely from company to company and state to state. In a nutshell, the company will guarantee you, say, 80% of the S&P 500 index rate of return for a specified number of years. They can guarantee you this 80% return for one year or for the length of the contract. So if the S&P 500 returns 10% you will have an 8% rate of return, in theory. The exact rate of return will depend on how the interest is credited to the contract.

For example, monthly averaging of the S&P 500 will return lower than annual calculations. There may also be a spread or monthly cap on the contract. The spread is a fee, if you will, and is shaved off of the rate of return of the index. A cap is the most amount of interest you may receive over specific time period.

We could go on about these types of products, but we won’t. You just have to be careful with equity index annuities. Read the small print and remember if it sounds too good to be true, it probably is.

Immediate annuities:

An immediate annuity is a contract that will immediately start payments to you. You will, at the time you sign up for the contract, choose the length of time you will receive payments for. You will have several different options to choose from.

You may choose a lifetime payout; this means for as long as you live the insurance company will continue to pay you. You may also choose period certain, this means you can choose payments that will stop after a specific number of years, for example a 15 year period certain will stop paying out after 15 years.

If you choose a life time option, typically, if you die prematurely than the insurance company will keep whatever has not been paid out. If you choose a period certain than you heirs will continue receiving payments for whatever time remains in the contract. If you choose a lifetime option many insurance companies offer some type of spousal protection. This means your spouse will continue to receive either all of or a portion of the payments for the rest of their life.

Immediate annuities have grown in popularity over the last few years, but you have to remember that these are irrevocable decisions. Make sure you understand that before you invest in these contracts, after the free look there is no turning back. You may be able to accomplish your goals using either traditional fixed annuities or even with a variable annuity living benefit. Do you research to make sure you are getting what is best for your needs.

If you want real facts on annuities than you are on the right site, just go to our home page and get the information you want. If you want specific information on index annuities than go to Jack Marion’s site. For fixed annuities there are several internet sites to visit, just shop around and find not just the best teaser rate, but find the companies that pay great rates after the contract is issued. Use Annuity IQ for variable annuity information, no pressure, no sales people and real unbiased opinions.