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Annuities
and Senior Citizens Annuity sales to senior citizens have significantly increased in
recent years. However, as annuity sales have risen, so has a sense of
confusion among consumers. This is due, in part, to questionable or
deceptive sales practices employed by companies and agents looking to take
advantage of uninformed consumers. It is extremely important, when
considering whether or not to buy an annuity, to take the necessary
precautions in order to make an informed decision that is best for
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What
is an Annuity? An annuity is a
contract in which an insurance company makes a series of income payments
at regular intervals in return for a premium or premiums you have paid.
Annuities are most often bought for future retirement income, and can pay
an income that can be guaranteed to last as long as you
live. What are the Different Kinds
of Annuities? There are
several types of annuities, all of which carry varying levels of risk and
guarantees. To get the most out of an annuity, it is imperative that you
know the different options available to you, as well as the benefits each
type provides. o
Single Premium
Annuity: An annuity in which you pay the insurance company only one
premium payment. o
Multiple Premium Annuity: An annuity
in which you pay the insurance company multiple premium payments. o
Immediate Annuity: An annuity in
which you begin to receive income payments no later than one year after
you pay the premium. o
Deferred Annuity: An annuity in
which you begin to receive income payments many years later. o
Fixed Annuity: An annuity in which
your money, less any applicable charges, earns interest at rates set by
the insurance company or in a way specified in the annuity contract. o
Variable Annuity: An annuity in
which the insurance company invests your money, less any applicable
charges, into a separate account based upon the risk you want to take. The
money can be invested in stocks, bonds or other investments. If the fund
does not do well, you may lose some or all of your
investment. o
Equity-Indexed Annuity: A variation
of a fixed annuity in which the interest rate is based on an outside
index, such as a stock market index. The annuity pays a base return, but
it may be higher if the index increases. Is an Annuity Right for
You? To find
out if an annuity is right for you, think about what your financial goals
are for the future. Analyze the amount of money you are willing to invest
in an annuity, as well as how much of a monetary risk you are willing to
take. You shouldn’t buy an annuity to reach short-term financial goals.
When determining whether an annuity would benefit you, ask yourself the
following questions: o
How much retirement income
will I need in addition to what I will get from Social Security and my
pension plan? o
Will I need supplementary
income for others in addition to myself? o
How long do I plan on
leaving money in the annuity? o
When do I plan on needing
income payments? o
Will the annuity allow me
to gain access to the money when I need it? o
Do I want a fixed annuity
with a guaranteed interest rate and little or no risk of losing the
principal? o
Do I want a variable
annuity with the potential for higher earnings that aren’t guaranteed and
the possibility that I may risk losing
principal? o
Or, am I somewhere in
between and willing to take some risks with an equity-indexed
annuity? |
Understand the Product You are
Buying When it
comes to annuities, inappropriate sales practices can occur in many ways
and come from a variety of sources. Anyone can be a victim, but senior
citizens remain a prime target. Here are a few ways to protect
yourself: o Always review the contract before you decide to buy an annuity. Terms and conditions of each annuity contract will vary. o You should understand the long-term nature of your purchase. Be sure you plan to keep an annuity long enough so the charges don’t take too much of the money you invest. o Compare information for similar contracts from several companies. Comparing products may help you make a better decision. o Ask your agent and/or the company for an explanation of anything you don’t understand. o
Remember that the quality of
service you can expect from the company and the agent should be an
important factor in your decision. o
Verify that the company
and agent are licensed. In order to sell insurance in your state,
companies and agents must be licensed. To confirm the credibility of a
company or agent, contact your state insurance
department. o
Check the company’s credit
rating. Legitimate insurers have their “creditworthiness” rated by
independent agencies such as Standard & Poor’s, A.M. Best Co. or
Moody’s Investors Services. An “A+++” or “AAA” rating is a sign of a
company’s strong financial stability. You can check a company’s rating
online or at your local library. o
The proof is in the
paperwork. As you complete your research and decide to purchase a
particular policy, it’s important to keep detailed records. Get all rate
quotes and key information in writing. Once you’ve made a purchase, keep a
copy of all paperwork you complete and sign, as well as any
correspondence, special offers and payment
receipts. Avoid Being Fooled by
Deceptive Sales Practices Watch for
the following red flags, which serve as warnings of possible deceptive
sales practices: o High-pressure sales pitch. If a particular group or agent has contacted you repeatedly, offering a “limited-time” deal that makes you uncomfortable or aggravated, trust your instincts and steer clear. o Quick-change tactics. Skilled scam artists will try to prey on your “time fears.” They may try to convince you to change coverage quickly without giving you the opportunity to do adequate research. o
Unwilling or unable to prove
credibility. A licensed agent will be more than willing to show
adequate credentials. o Remember, if it seems too good to be true, it probably is! o If you suspect you’ve been a victim of deceptive sales practices, or you have a specific question and can’t get the answers you need from an agent or the insurance company, contact your state insurance department. You can link to its Web site by visiting http://www.naic.org/. |
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The National Association of
Insurance Commissioners
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