Annuities and Insurance
Annuities and Insurance in Stuart
Annuities can be expensive and difficult to understand. We believe our clients should fully understand each and every investment. This does not mean that all annuities are bad. It means that as an investor you should research the annuity you own to understand how it benefits you. There are many different types of annuities in the marketplace today. The three most widely sold are variable, fixed, and indexed annuities.
Variable annuities have a wide range of investments to choose from which are tied to the the stock and bond market called sub-accounts. These sub-accounts are essentially mutual funds, but they are called sub-accounts within variable annuities because they are not tied to the general account of the insurance company. Variable annuities can have high ongoing expenses. Every investor should ask how much each of these expenses cost annually. These range from Mortality and expense, administrative fees, as well as optional guaranteed death benefit riders and income riders. On top of these fees each sub-account will have its’ own expense ratio which should be disclosed prior to purchase.
Fixed annuities are annuities that will provide a fixed rate of return for a fixed amount of time. These annuities are very basic. You need to make sure of the amount of interest the annuity pays and for how long the insurance company guarantees that rate.
Indexed annuities are much more complex. Indexed annuities will provide returns based on a stock index performance for that given year. The rate of return is based on the terms set forth in the annuity contract. Typically, these products have a set formula to calculate the rate of return for that given index. They are not tied directly to the stock market, so do not expect a stock market type return. Most of these annuities will have a built in surrender charge schedule that will penalize the investor if the product is sold prior to the end of the surrender period.