Pros And Cons Of Annuities
What is the pros and cons of annuity insurance?
Insurance companies sell annuities that have a fixed rate, variable rate, or equity indexed. Fixed rate annuities accumulate at a guaranteed interest rate. Variable annuities have their funds invested in various mutual or bond funds and return is not guaranteed, but performance may be higher than those of fixed rate annuities. Equity indexed annuities are invested in various mutual funds and bonds, but there is also a guarantee of a minimum return. For this guarantee, the insurance company charges a fee. The insurance company also must pay commissions to brokers that is. They get this rate by the annuity purchaser. Annuities are one way to guarantee income for life. This is the main pro. The disadvantages are several: If you die sooner rather than later, the insurance company puts your money unless they take payments in a given base year. For this privilege, your monthly income be reduced, however. Insurance companies are not about to lose. They were cut in some way. Income from variable annuities is not predictable. The income of the pensioner, can vary considerably with the population and the functioning of the bond market. This can be a disadvantage for someone who is dependent on a certain level of income from this annuity. But they can also reap the benefits of increases in the markets. Some people do not feel comfortable or feel unable to allocate their retirement funds wisely. No protection against inflation with a fixed annuity. As prices rise, the purchasing power of their monthly payment drops annuity. In a variable annuity, if your subaccounts perform well, your payments will get bigger, it protects against inflation. But, although it is sure to receive payments for life (as with the fixed) do not know from month to month exactly what your payment will be. If you buy a variable annuity, choose one with low annual fees as payments are based on the returns after expenses. I'm not even going to touch the equity indexed annuities. It's too complicated to explain in this space. If you want to read about them, see the article on annuities in the September 2006 "Money" magazine, pp. 108-9. Talking about the 3 types.
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