Annuity Scams: Part 1 October 31, 2009
Posted by janey in : grant money , trackbackRight off the bat let me clear something up, Annuities themselves aren’t bad. Most people have a negative image of them due to bad agents.
There’s no need to fear getting an annuity for your retirement, so please keep it in mind. Instead, focus your worrying on things like Social Security or Medicare, things that actually face major crises.
Choosing an annuity as a retirement investment vehicle is a science. There are a lot of things to look into in order to figure out how suitable a purchaser is for a particular annuity. Then comes product selection. If you are deemed suitable for an annuity, you’ll move on to product screening. And, in a lot of ways, it is.
You’ll find that selecting products brings out a lot of sleazy salesmen. When you buy an annuity the salesman will get a commission, so it is obvious that all agents are looking to make some money. It’s a fact of business. Just concentrate on what you need and you should be fine. If you want to pick the best product for you, there are some things you should consider in your search.
Surrender Charges - The majority of deferred annuities don’t have any upfront fees whatsoever so the way that the insurance companies protect themselves from a loss so what they will do is charge you a fee if you happen to cancel your contract prematurely. Longer surrender schedules indicate a higher cost to the company. Most of the time this is linked to upfront bonuses and higher than average agent commissions. You’ll get the short end of the stick. If the surrender schedule is seven years or longer, just skip it. Some decent products have longer schedules but there needs to be a compelling reason to extend the contract. Research very thoroughly!
On a side note, make sure you clearly understand any additional restrictions placed on the surrender of a contract. Some contracts state that you can only surrender early if you take installments over a certain period. Also, those same contracts will impose those restrictions on your heirs should you pass away before the schedule expires. Avoid contracts like those at all costs. There isn’t any academic benefits with annuities like those. You should maintain as much control as you can over your money, after all it is yours.
Interest Rates- An individual must learn to analyze the interest rate components of a contract. Some important rates that are good to know about are yield to surrender, guaranteed minimums, and premium bonuses.
Premium Bonuses - A lot of upfront bonuses are meant to draw customers in. Bonuses like these most times don’t work out to your advantage. It raises the cost of the companies placement and leads will most times mean even longer surrender schedules. Don’t let the sirens lure you in. Just turn around and keep walking.
Guaranteed Minimums- This rate tells you how much interest you will make in the worst-case scenario. 3% is the absolute minimum you should ask for. If a company pays less than that, it will indicate one of two things. They will either not know where their company is going to be a few years down the road, or want costs to go down. You want solid companies that have survived the 2008 financial storm and expect to do business as usual now and in the future. Your money deserves no less than the best.
Yield to Surrender- This number is the cumulative rate of return that you should expect once your contract expires. In this, you’ll be able to see the good minimum guarantees and the negligible bonuses. Bonus rates likely lose ground over time and a good minimum guarantee will provide you with reasonable expectations.
Credit Ratings- Annuities should be safe investments. It should go without saying that you want to place your money with the most stable company you can find. In this time of financial crisis, it’s easier than ever to spot the strong companies. Contact them first. You can trust them with your money.
To keep things simple, we can stop right there. Those are the areas where you’ll probably run into some trouble. Captive agents have little choice but to sell specific products and commission motivated agents will often overlook many potential pitfalls. Just keep in mind what we’ve told you, and you’ll be fine. Don’t be unnecessarily fearful of annuities, as they won’t hurt you.
Make sure you check out AnnuityStraightTalk.com for the tools that will enable you to make a more informed decision about Annuities.
I want you to have all the tools and knowledge possible before making a big financial decision. Check out the resources at www.AnnuityStraightTalk.com - annuity scams
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