Persia Insurance Group

There are many different annuity products available on the market today. Companies offering annuities strive to offer a variety of features and riders that will appeal to the specific needs of their clients.

When shopping for this investment vehicle, most buyers compare annuities to evaluate which is best for their own situation. Comparing the overall annuity product, one can look at fixed, variable, tax-deferred, guaranteed, inherited, and equity indexed annuities. These terms refer to the different features that can be applied to the basic annuity product. Some of these features are great for certain investors, while others are not. The important factor to remember is that once you have decided on the type of annuity to purchase, you still must compare products within that category.

Considering Fixed Annuities

Fixed annuities are investments issued by insurance companies that are primarily geared towards retirement savings, and promising the investor a fixed series of payments for a predetermined length of time. Not all fixed annuities are the same, so investors must compare one fixed annuity with another in a couple of key areas.

First, there are two options for owners of fixed annuities when it comes to paying premiums. The first is the installment premium method where the annuity owner pays premiums over an extended period of time: say, 10 years, and the other is a single premium method whereby the owner makes one lump sum into the annuity account.

Next, fixed annuities typically provide the account holder options as to how benefits will be received, utilizing one of two distribution methods. Account owners must compare the annuity payout method to determine which will work best for them. These payout methods can be immediate, where the annuity issuer begins payments right away, or within a very short period of time, until both the initial investment and the interest are depleted. Deferred fixed annuities wait until the end of a specified time period prior to paying out funds. This time period may be a certain number of years, or it may be when the annuity owner reaches a certain age such as 65 or 70.

Once a time period is selected for payouts to begin, one must also compare the length of time that their fixed annuity will pay. There are primarily three payout periods with fixed annuities.

• Life annuities pay income benefits to the annuitant as long as he or she is alive. With this option, benefits cease once the annuitant passes away.
• Term certain annuities offer payments that are received until a predetermined date or term. If the annuitant were to pass away during the predetermined time period, the insurance company keeps the remaining value of the annuity contract.
• Life with term certain is a third option. With this type of annuity, payments are received as long as the annuitant is alive, however, if they were to pass away during the predetermined time period, benefits would continue to be paid to a beneficiary for the remaining term of the fixed annuity contract.

Considering Equity Indexed Annuities

Most fixed annuities only credit interest calculated at a rate set in the contract, whereas equity indexed annuities earn interest that is linked to a stock or other equity index.

Equity indexed annuities promise to pay a minimum interest rate. When comparing one indexed annuity to another, the following features must be considered: First, compare which indexing method the annuity contract uses to calculate interest. Next, compare the annuity participation rate, meaning how much of the increase in the index will be used to calculate the index-linked interest. In addition, the cap or cap rate must be compared. Some annuities may put an upper limit, or cap, on the index-linked interest rate. This is the maximum rate of interest the annuity will earn.

Indexed annuities can also be compared by looking at the floor on the equity index-linked interest. This floor is the minimum interest rate that the annuity owner will earn. A common floor is 0%, assuring that even if the index decreases in value, the interest rate earned will not be a negative amount.

An indexed annuity can improve the owner’s earnings potential, while at the same time keeping principal safe from market fluctuation. For retirees seeking no downside risk, an indexed annuity could be a good option. However, investors must compare these annuity features to make sure they have the right investment for their needs.

Considering Variable Annuities

In contrast to fixed annuities, variable annuities provide the opportunity for market appreciation through a variety of investment options, with tax deferred accumulation, as well as future income.

Factors to consider when shopping for a variable annuity are fees, fund choices, surrender charges, and financial strength of the issuing company. Compare the variable annuity fund choices available as well as their performance over time. With a variable annuity, one should compare like funds and sub-accounts, for example large-cap growth versus other large-cap growth funds.

Most variable annuities allow the account owner to withdraw either their interest or their interest earnings up to 15% per year without penalty. However, in doing so, most variable annuities also have a surrender charge for making an early withdrawal above these limits. Investors must compare variable annuity surrender charges, as they can differ significantly from one annuity to another and one company to another. Some companies have surrender charges for up to seven years, while others may be as long as ten or more years.

Insurance Ratings as a Final Crucial Factor

An annuity, regardless of whether it is fixed, equity indexed, or variable, is only as good as the insurance company that issues it. Investors must compare the financial strength ratings of the company issuing the annuity to ensure that the company will be there to make good on its obligations.