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Annuities

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 to the insurance company. Annuities are often purchased for future retirement income.

Annuitization results from your election to receive regular income payments from your contract. Once you choose to annuitize your contract, that decision cannot be changed. If you elect to annuitize your contract, you will no longer be able to change the terms of the payments to you. You will no longer have access to money that you have paid to the insurance company outside of the payment plan that you elected.

Is an annuity right for you?

-	You should think about what your goals are for the money you may put into the annuity, as well as how much risk you are willing to take. While some annuities provide a guaranteed return, others may involve risk of loss of premium.

Ask yourself the following questions:

How much retirement income will you need in addition to what you will get from Social Security and from your pension?

Will you need that additional income only for yourself or for yourself and others who depend on you?

How long can you leave money in the annuity and does the annuity let you take out money when you need it?

Is this a single premium contract? Or is it flexible premium allowing you to make additional premium payments?

For a fixed annuity, what is the initial interest rate and for how long is it guaranteed?

Can you get a partial withdrawal without paying surrender or other charges and is there a death benefit?

Types of Annuities:

Single Premium - An annuity where you pay the insurance company only one premium payment.

Flexible Premium - An annuity where you pay multiple premium payments to the insurance company.

Immediate - An annuity where income payments to you start immediately, but no later than one year after you pay the premium.

Deferred - An annuity where income payments are not scheduled to start for several years after you pay the premium.

Fixed - An annuity where your money, less any applicable charges, earns interest at rates set by the insurance company or in a way specified in the annuity contract.

Variable - An annuity where 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. You may direct allocations of your money into separate accounts. If the fund does not do well, you may lose some or all of your investment.

Equity-Indexed - A variation of a fixed annuity where 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 goes up.

What is a Maturity Date?

picture of someone throwing an arrow at a target

The maturity date is a date determined when you purchase the annuity. It is the latest date on which you can begin receiving payments from your annuity under any of the settlement options available to you. The date shown on the specifications page of your contract is automatically set as the date when you must begin receiving payments from your contract. The maturity date does not restrict the settlement options provided by the company. You can start receiving payments from your annuity as early as one year after the contract is issued, or at any time thereafter.

Settlement options are explained in your contract, disclosure statement and product brochure. Settlement options are the various ways in which you can receive income from your annuity contract. You may also be able to “annuitize” the accumulated value of your contract any time after the first anniversary date, subject to limitations.

Is the person selling you this product knowledgable and trustworthy?

Insurance professionals have developed an array of designations and certifications that can be confusing.

The requirements needed to obtain a certain designation or certification vary from having to attend a three-day seminar, and pass a multiple-choice exam [CSA or Certified Senior Advisor], to a designation that is recognized industry-wide and has been certified for undergraduate and graduate degrees [CPCU or Chartered Property Casualty Underwriter].

Some designations, such as CSA (Certified Senior Advisor), require no experience. Determine for yourself whether the individual's qualifications and experience meet your needs.

Questions you should ask your agent or the company:

What is the guaranteed minimum interest rate?
What charges, if any, are deducted from my premium & when?
What charges, if any, are deducted from my contract value & when?
What are the surrender charges or penaltiesif I want to end my contract early and take outall of my money?
For how many years will surrender charges apply?
Can I get a partial withdrawal without paying charges or losing earned interest? Does my contract have vesting?
Does my annuity waive withdrawal chargesif I am confined to a nursing home or diagnosed with a terminal illness?
What annuity income payment options do I have and when?
What are the terms of the death benefit?
What are the risks that my annuity/earned interest could decline in value?
Is interest compounded during the term of the policy?
What is your commission on this product?

Additional questions to ask for equity-indexed annuities:

What is the participation rate?
For how long is the participation rate guaranteed?
Is there a minimum participation rate?
Does my contract have a cap on interest earned?
Is averaging used? How does it work?
Is there a margin, spread, or administrative fee? Is that in addition to or instead of a participation rate?
Which indexing method is used in my contract?
What is the minimum interest the contract can earn?
What is the maximum (cap) interest the contract can earn?

Review your contract carefully!

As with any insurance product, always review the contract and be sure you understand the terms and conditions, as these will vary from contract to contract.

Ask the agent and/or company for a written explanation of anything you do not understand. Do this before any free look period ends. This free look period gives you a set number of days to look at the annuity contract after you buy it. If you decide during that time that you do not want the annuity, you can return the contract and get all your money back.

Use caution when attending senior seminars!

Seminars are a common way for annuity sales persons to market their particular products. Sometimes an offer of a free meal is really an invitation to a sales seminar. These seminars or the follow-up visit after the seminar can involve high-pressure sales tactics. Use caution when attending these seminars and, at a minimum, ask the appropriate questions listed in this brochure before you invest in an annuity.

Where can I get more information?

-	Understanding Annuities: Are They Right for You? (printable brochure from the Division of Insurance) Variable Annuity Investor Tips (published by the Securities & Exchange Commission) Annuities - What Consumers Should Know (printable fact sheet from the Division of Insurance)

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