Insurance

Read this before purchasing an annuity.

Purchasing an annuity is a major financial commitment. When you sign the contract it is almost like buying a house. As long as you understand the details and the annuity is a good fit it can be one of the best decisions you could have possibly made! I am definitely pro annuities! Just be sure to understand what you are getting.

When you purchase an annuity there are certain considerations to keep in mind. Be sure to:

1. Understand the surrender charges. Surrender charges can extend for as long as 15 years in some cases and can be very expensive. Purchase an annuity that matches your schedule so that money will be free when you need it.

2. Know your time horizon for investing. When do you need money out of the annuity? How much will you need? Annuities that you purchase are meant for long term investing.

3. Check the rating of the insurance company before purchasing an annuity. If a higher rated company is offering an almost identical product then choose the company with the highest rating.

4. Understand why you are purchasing an annuity. Is it for safety? Is it for income? Is it for growth? Is it for security? Is it for tax deferral? Is it for a guaranteed income stream? Is it for other guarantees? And does it really fit into your investment plan? Are you using the annuity in place of fixed income investments or as a growth investment?

5. Understand the differences between a fixed and variable annuity. A fixed annuity cannot go down in value. A variable annuity can go down with the stock market. They can both have certain guarantees so be sure to understand what you are getting? Can it go down in value? Why do you need to purchase an annuity that can lose value?

6. Learn about how this annuity is going to affect your taxes when you take money out. Annuities are taxed a little differently than other investments. Is your annuity in an IRA? How does that affect your taxes? Also, if you are passing this annuity down to heirs then why are you purchasing an annuity? Is it for tax benefits or insurability problems?

If you are looking at purchasing a variable annuity:

1. Ask this question - Why are you purchasing a variable annuity that can go down in value? It is not about how great the past performance has been. The sub accounts/investment options rarely perform the same two years in a row. You need to have a reason to purchase an annuity.

2. Also before you purchase an annuity be sure that you can afford to have your investment down when you need the money. If not then do not purchase variable annuities.

If you are looking at purchasing a fixed annuity:

1. The surrender charges are usually higher on fixed annuities than other types. Be sure that if you need any of this money there will be enough, with no charges, available at the right time.

2. Fixed annuities have amazing guarantees. Before you purchase an annuity because of one of these guarantees just be sure to understand it completely. How you take money out is the main thing to look for at first. Then compare the guarantee with other annuities and their guarantees. Some are better than others and might fit your situation a little better.

One last absolutely vital thing to check is the dollar amount of your states guarantees. Run a Google search for (your state) insurance guarantee. Do not go over that amount with a single insurance company ever.

Before you purchase an annuity be sure to get all of these questions answered and the details clear in your mind. Most of all do not be rushed into making any decisions. There is no reason to rush through such a long term decision like purchasing an annuity.