Annuities: Not So Scary After All
Annuities.
If the very mention of the "A" word makes you feel like slinking into the corner in aversion, you're not alone. Annuities have also gotten a bad rap for being involved and complicated, and as a result, they've seemingly become the black sheep of the health and life insurance family.
In fact, I do believe this is the first post on annuities here at the Insurance Blog. Just goes to show you that the "A" word has intimidated us insurance bloggers, too. :)
The good news is that annuities have become much easier to understand, and combined with new earning features, annuities are quickly growing in popularity. This month's Health Insurance Underwriter (HIU) magazine has a lengthy bit on the product, and combined with the helpful information over at the Insurance Information Institute, I think we can put the scary stigma of annuities to rest.
But let's start with the basics: What is an annuity?
According to the I.I.I., an annuity is a contact with an insurance company that allows the policyholder to make payments in exchange for retirement savings and/or a steady stream of income payments for life. We're talking about the possibility of a constant income that you cannot outlive.
Additionally, HIU reports that during your working years, a deferred annuity can be used to accumulate assets for retirement—the assets of which can grow tax-deferred. That means you don't have to pay federal income taxes on annuity earnings, which means that your money can potentially grow at a faster rate than it could in other subject-to-tax products. Bling, bling, as the kids say.
In addition to tax-deferred assets, HIU highlights three more reasons why annuities are becoming so popular.
Take a look:
- Income for Life. I touched on this briefly, but currently, annuities are the only product than that guarantee a stream of payments that can't be outlived by the policyholder. The best life insurance policy in the world can't even guarantee that.
- No Limits on Contribution. Non-qualified annuities are not subject to the same rules which limit annual contributions to IRAs and other qualified plans.
- Safety of a Premium. Annuities are relatively low-risk products which contain features that allow the annuity holder to make premium payments.
Despite those great benefits, annuities are only great if they're right for you. How can you tell? HIU says a deferred annuity may be the solution for folks who:
- are risk-averse
- are contributing the maximum to their employer-sponsored qualified plan (like a 401k)
- are a little (or a lot) behind in retirement savings
- could benefit from a tax-deferred product
- need retirement income
It's pretty cool stuff. Additionally, because annuities have undergone recent product enhancement, more insurance agents are selling annuities—making it easier to find a knowledgeable agent who can help you select the annuity that's best for you.
Let's recap: annuities have the capabilities to grow, tax-deferred while you're employed. They also have the capability to provide you and your loved ones with a steady stream of income past retirement that you can't outlive.
Clear as mud? :)
Don't hesitate to send me an email or leave your questions via our comments section. You can also visit the I.I.I. site for more on annuities, as well as this site which contains great product details and tips, along with a quiz to help you determine what kind of annuity is right for you.
