An annuity is a type of investment that provides you with a monthly payment during retirement. Before purchasing this type of investment contract, it is important to find out as much information about it as you can. Asking the right questions of an annuity provider can help you avoid making a bad decision.
What Fees are Involved With This Annuity?
Even though an annuity contract can provide you with a way to create a regular payment during your retirement years, it will cost you something to purchase. Insurance companies charge a variety of fees for this type of product. You may have to pay administrative fees, mortality and expense risk charges, margins on investment returns and other fees. When you invest in this type of contract, knowing the fees and charges can help you make an informed decision.
What Type of Annuity is This?
There are different types of annuity contracts that you could purchase. You could get a fixed annuity, a variable annuity or an equity-indexed annuity. The fixed annuity gives you a fixed interest rate on your investment and a fixed payment during retirement. The variable annuity allows you to be in charge of the investment options for your money and your returns are tied to the investment returns of your annuity. The equity-indexed annuity is tied to a financial index like the Dow Jones Industrial Average.
What is Your Financial Rating?
Annuities are considered by many to be a guaranteed investment. While these investments are guaranteed, they are guaranteed by the insurance companies themselves. This means that you need to choose an insurance company that is financially sound. To compare one company against another, you can use financial ratings that are provided by entities like Standard & Poor's or Moody's. This tells you how well a company is doing financially and whether you should be worried about your retirement investment.
What Happens to My Money If I Die?
Some annuities will come with a death benefit. Other annuity contracts will not provide any death benefit for your loved ones when you die. Find out if the insurance company will continue to make your annuity payment to your spouse or beneficiaries for a certain amount of time after you die. Some other annuity contracts will provide a lump sum to your beneficiaries upon your death. If your annuity has no such provision, the insurance company will keep all the money that you have paid into your contract if you die before you are able to use it. This can negatively affect your spouse or other beneficiaries financially.