There are at least five common mistakes to avoid when buying an annuity. Annuities can be great financial planning and retirement planning tools. But not all annuities are created equal. This article is going to outline these fives mistakes so you can purchase the right contract for your situation.
1. Not Learning the Terminology
The best way to avoid making a mistake is to understand the basic terminology and principles of annuity contracts. Trying to understand the large amount of information out there can seem overwhelming, but it is necessary for you to make the best choice. If you have a hard time doing the research on your own, meet with a qualified insurance agent who can fully explain the concepts to you.
2. Only Looking at One Insurance Company
There are numerous companies that offer annuities. Each of these companies offers policies with a wide variety of features and components. Insurance companies have grade ratings, so it is important you engage with a company that has a high rating. Then you should compare quotes from several highly rated companies to get a quality product that fits your needs.
3. Not Assessing the Annuity According to Your Needs
There are a lot of high-quality annuities offered by reputable companies. Not every product, no matter how high the quality, will be right for your needs. When shopping for a policy you need to be sure that the contract will give you what you need to better your unique financial situation. To help with this determination there are some questions you can ask yourself:
- How long will you need the annuity?
- What goals are you hoping to accomplish with it?
- How much in fees are you willing to pay?
- Are you looking for a fixed index annuity or a fixed rate annuity?
- Do you want an immediate or deferred benefit?
Finding the answers to these questions will help you find the best policy for your situation.
4. Not Paying Attention to Fees
The benefits that annuities offer all come at a cost. It is important for you to determine if the fees are worth the benefits. There are different types of fees that you should be on the lookout for. These include mortality and expense fees, administrative fees, surrender charges, investment management fees, and fees involved with optional riders. Understanding the fees will help you to make comparisons between companies and avoid heavy fees. When comparing fees, it is important that you take into consideration the total fees, not just the fees from one category. This will give you a better picture of what will be involved.
5. Overlooking the Impact of Inflation
When purchasing an annuity, you are paying now for a guaranteed return in the future. Because of this, setting up an annuity is always going to carry some form of inflation risk. The problem occurs if your returns do not keep up with inflation. To prevent this issue many annuities, have an inflation rider component. It is something that anyone shopping for an annuity should seriously consider.
Successfully Avoiding Mistakes
Now that you have learned about our five mistakes to avoid when buying an annuity, you can successfully avoid these mistakes. You should also meet with a qualified insurance agent who can guide you even more accurately on your path to purchasing an annuity.
Questions? Want to schedule an appointment? Contact us by clicking here.