Annuities can be very complex. Contracts are long, written in legalese and full of industry jargon few annuity owners actually understand. So how can you get actual insight into annuities before you buy, sell or swap your annuity?
There isn’t any magic trick. Often, the best resource you have, unfortunately, is the thick brochure your agent or broker provided you with (called either the contract or the prospectus, depending on annuity type).
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But this can leave many questions unanswered. To help, here is a list of questions you can ask your financial professional that may provide you with insights on your annuity:
What type of annuity is this?
The types of annuities will determine the volatility you experience and the way your return is determined. All investors must consider risk and return, so this is key.
- How much is your direct compensation when I purchase this?
Annuities typically pay huge commissions to selling agents/brokers. While your broker may not be motivated by this, it is important to understand the potential for conflicts of interest.
- If any part of the return is fixed, how is the return calculated and how often will the factors change?
In equity-indexed and fixed annuities, this is a crucial determinant of what your return will be.
- Can you provide a written summary of all fees, expenses and charges embedded in the contract you are recommending to me?
Many times, added features called riders carry extra expenses. Also, in variable annuities, total charges can be difficult to calculate because fees are layered.
- What if I want out of the contract?
Exit penalties called surrender charges often exist in annuities and can be significant. Better to know this upfront than find out when you are dissatisfied with the product and wish to make a change.
- If I pass away with money remaining in the annuity, what will my beneficiaries receive and in what form? If there is a death benefit, am I paying extra for it?
- Are annuity payments indexed for inflation? If so, what is the rate and is this reducing my annuity payments in early years?
These seven questions are a good start to giving you the annuity insights you might need to know if the product is right for you. For more information, please download our free Annuity Insights brochure.