Comparison of Immediate Annuity Rates
If you put your funds into an annuity and begin payments right away, you purchased an immediate annuity. Just like every financial product, there are differences in the return. In order to find the best return, you have to compare the payment the company makes to you. When you make a comparison of immediate annuity rates you need to be on the alert for some specific items.
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Types
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There are several types of annuities from which to choose. The two most often used for immediate annuities are variable annuities and fixed annuities. A variable annuity uses a mix of investments, and the payment fluctuates. Fixed annuities are interest-bearing and have a consistent payment amount. A newer immediate annuity offered is the inflation indexed annuity. It increases payments just like the variable but bases the increase on inflation.
Features
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If you select an immediate variable annuity, use one that has a payment lock-in feature. Normally, the payment starts lower but if the company has good investment results it increases. The policies with a lock-in feature lock in the higher payment even if the market drops. Other variable policies without this feature use the original payment as the base with no increase.
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Time Frame
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Immediate annuity rates vary a great deal. As mentioned previously, you'll notice that the variable annuity offers a much lower payment. If you're younger, however, the variable and inflation-indexed annuities are the best type of immediate annuity to use. Inflation has more opportunity to erode your payment over your lifetime. People in the late 1950s who received an annuity payment of $200 a month lived like kings initially. By the 1970s it was barely enough for monthly food and utilities. An immediate variable annuity protects you from the ravages of inflation.
Benefits
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The highest payout option you'll find is life only. If you want to make certain that your spouse receives the funds if you die, you need to choose a different type of benefit. Joint life and survivor immediate annuities offer payments that last until both of you die. Another option is life payments with a period certain. It guarantees payments for your life or a specific number of years, whichever is longer. Life with cash refund or installment refund guarantees your beneficiary receives unused portions of your initial premium. The monthly payment varies for each of these options. Always compare like-options to like-options.
Warning
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Be aware that you'll often see much higher payments for life-only immediate annuities, but if you die right after you receive the first annuity payment, the balance of the money goes to the insurance company. If you have health issues that might cause you to die early, make certain you use one of the alternative options to guarantee you get the most for your money.
Prevention/Solution
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Once you've found the type of annuity you want and the payment option, use online comparison quotes. If you input your information, the quoting sites give quotes for a number of different companies. Use several different sites to retrieve quotes.
Warning
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Check for the financial stability of the insurance company and investigate before you buy, particularly if the payment for one company is excessively higher than it is for other companies. Even though there's a guarantee fund for insurance companies similar to the FDIC for banks, it's always best to avoid any hassles.
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References
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- Photo Credit Image by Flickr.com, courtesy of Andrew Magill
