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Annuity Pre-Buying Checklist

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What to Consider

A well-informed buyer makes the best choice. Here’s a handy list of things to check before you purchase an annuity. You will need to consider the following regarding your insurance agent, the annuity product, and the insurer issuing the annuity.

The Agent

[  ] Qualifications

Check if your agent is qualified to provide financial advice. If not, consider consulting a qualified financial planner regarding your retirement plans.

[  ] Background

Get a free online background check on your agent from FINRA. This lets you examine their employment history, professional qualifications and passed exams, and will also show you if there are complaints or disciplinary actions against them.

[  ] Reliability

You need to know if you can rely on the agent to keep your financial interests ahead of their commission. Request all information on fees and charges and make sure that they can clearly explain what these are. Also, don’t hesitate to get a second opinion or shop around for the best products and prices.

The Annuity

[  ] Type of Annuity

Understand the different types of annuities and be certain about the benefits, features and limitations of those you’re considering to purchase. This lets you know which works best for your unique needs, financial goals, and risk tolerance.

[  ] Fixed Interest Rate

Fixed annuities are often advertised with a great initial rate that then decreases over time. In most cases, that rate usually lasts for a year. However, it’s recommended to only get annuities with guarantees equal to the surrender period so that your rates are ‘locked in’ during the time withdrawals have a penalty.

[  ] Structure

Make sure you understand how your annuity is structured because it will influence your income payments and death benefits. Confirm that the owner, annuitant and primary beneficiary of the contract are all correct before signing.

The Insurer

[  ] Financial Ratings

The issuer of your annuity is responsible for all guarantees of the product; therefore, you should highly consider the financial strength of the company.

Review or ask for the company’s ratings from A.M. Best, S&P and Moody’s. These independent organizations rate insurance companies based on their capability to fulfill financial obligations to policyholders and claimants.

[  ] Option to Transfer

Your retirement goals will likely change over time, during which your long-term investment in an annuity may shift. It’s recommended to get a flexible annuity that allows you to transfer between portfolios without any charges.

Going through this checklist should narrow down your choices significantly and point you towards the best choice. Finally, you can be more confident in your investment decision; however, there are still a few more pitfalls you need to be aware of.

Helpful Resources:

Annuities: How To Find The Right One For You, Investopedia

How to Select and Shop for an Annuity, The Wall Street Journal


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