Common Annuity Shopper Questions

Most people are very unfamiliar with the whole concept of annuities so they will have a lot of questions about annuities. Therefore we’ll try and answer a few of the most common questions about annuities.

Is an annuity an insurance policy or an investment?

An annuity is an insured investment, not an insurance policy. In annuity all or a portion of the investment is insured so that the investor will not loose the funds invested.

Are annuities a good investment for everybody?

No, there are some cases in which annuities are not a good investment. annuities are not a good investment for younger people because there are tax penalties for those who take money out before age 59.

Are the fees on annuities very high?

Some annuities do come with high fees. There are many excellent annuity products with low fees. It is also possible to get annuities with no load or no fee options.

Is there a high charge for taking funds out of an annuity early?

There are many annuities with no penalty fees and liquidity provisions that allow persons to take funds out of them free of charge. So it is very easy to find an annuity that does not charge a fee for early withdrawal.

Are annuities securities?

Currently, annuities are not considered securities under the law in the US. This means that annuities are presently regulated by state insurance commissioners rather than the US Securities and Exchange Commission (SEC). The SEC tried to regulate indexed annuities but the federal courts ruled that it didn’t have the authority to do so.

Can I loose my money if the company that issues the annuity goes out of business?

Probably not, most state governments insure annuities for up to $100,000. This should cover most losses for average investors.

Should I use annuities as a short term investment?

No, annuities are intended to be a long term investment. Short term investors will loose most of the tax and other advantages from annuities.

Can I leave an annuity to my heirs?

Yes, most annuities allow a person to pick a beneficiary who will receive the funds in it if they die. The beneficiary will have to decide how he or she wants to receive the annuity funds.

Can my spouse get the annuity after I die?

Yes, in most cases a spouse should be able to keep receiving annuity payments after an annuity owner’s death.

Do I have to take the monthly annuity payments?

No, an annuity holder can choose to receive the annuity funds in one lump sum. There can be tax penalties for such a big payment though.

Can I use my 401K or IRA to invest in annuities?

Yes, it should be able to possible to roll the funds in a retirement account over to an annuity without incurring any tax penalties. It is also possible to set up an automatic investment in an annuity through a retirement account.

Can I roll the funds from my retirement account over into an annuity?

It is a fairly easy procedure to roll the funds in most retirement accounts over to an annuity. A person should pay no extra taxes as long as the funds don’t enter their bank account.

Are Fixed Annuities better than Regular Annuities?

This is a fairly complex question that depends on your current financial status as well as the goals you have. If you do go with a fixed annuity, be sure to lock in your fixed annuity rates before they rise.

Can I move the funds in my annuity to another annuity if I change my mind later on?

It is a fairly easy procedure to roll funds over from one annuity to another. As long as the funds go directly into another annuity there should be no taxes on them.

Will I have to pay taxes on my annuity?

Generally,  a person will only have to pay taxes on funds in an annuity when you take them out.

Is it possible to compare different annuities so I can know that I’m getting the best deal?

Yes, there are many resources available including websites that allow customers to compare annuities. A person should always compare several different annuities before making a decision.

Can inflation affect annuities?

Yes, inflation can reduce the value of an annuity but it can have the same effects on any other investment. A person can mitigate the effects of inflation by purchasing a variable or indexed annuity.