How to Buy a Fixed Annuity

Purchasing a fixed annuity is a complex decision. The purchaser must understand the function of the annuity, the benefits, liabilities, fees and penalties the investment carries. Fixed annuity also has many options and the credibility of the annuity varies by institution. Purchasing annuities should be made only after consulting personal financial advisers.

Difficulty: Moderately Challenging

Instructions

1. Make a list of your individual financial needs and the features of a fixed annuity that would best fit those needs. The list of needs can include retirement income, benefits for a nominated beneficiary after death or term specific benefits. Making a list of your needs will help you determine the most suitable type of fixed annuity.

2. Go to reputable websites of financial institutions that offer fixed annuities and search for fixed annuities and their ratings. The largest percentage of fixed annuities is offered by life insurance companies. The ratings of annuities are given by A.M. Best, Moody's Investor Services, Fitch Ratings, Standard & Poor's and Weiss Ratings. Make a short list of the annuities that have good ratings and features suited for your financial position.

3. Request a prospectus and personal consultation with a financial consultant from the institution for the selected annuities. The consultant will explain some of the key features of the annuity. Request information from multiple short listed annuities and, if possible, hold personal consultations for each product. Some companies offer on-line and phone consultations after you complete a small form. Take advantage of all the information the company is willing to offer.

4. Prepare a comparison chart with the following categories: fees, interest rates, surrender rights and tax benefits. Fill in the information of the annuities under these categories to allow fast comparison. Using comparison charts will help to determine the annuity with low fees and high rates.

5. Consult your own financial adviser for an independent opinion on the selected annuity. Annuity has to be viewed as a part of your portfolio and your personal financial adviser may be able to best make the call on the decision to purchase one. The comparison chart can also help in discussing specifics with your adviser. Make the purchase decision after this discussion.

Tips & Warnings

• Before making any investment in annuities, discuss the options that have been narrowed down with your financial adviser. Review multiple financial websites to gather information on the insurance company and on the annuity. Request a prospectus for the annuity and a consultation with an insurance agent. Consult a lawyer if needed to discuss beneficiary payment provisions.
• Always consult your financial adviser before making any investment decision. The annuity cannot be viewed in isolation but in terms of your whole investment portfolio. Most often, the financial adviser will be able to purchase the annuity for you or refer you to a qualified insurance agent.

References

• Financial Planning for Retirement.
• Annuities

Resources

• Fixed Annuity