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Lesser Known Fixed Annuity Benefits Include Protection from Lawsuits


Most often, people buy fixed annuities for two reasons.  Their principal is protected and they receive a fixed rate rate of return and lifetime income payments if that option is chosen.  But in “Other Protections of Fixed Annuities” from Bob Richards of Learn Bonds, he lists many other benefits of fixed annuities.  I didn’t even know of some of these little known benefits.  People with bad credit are subject to lose money from their stocks, bonds, or mutual funds in the case of a bankruptcy.  But in most states, your annuity money cannot be touched by creditors or attached to a lawsuit.  Hopefully you don’t fall into the status of having such bad credit, but this is a little known benefit of fixed annuities in case you do.

Fixed annuity products are classified as insurance, which means that there are state insurance benefits that apply to your fixed annuities.  You are safe from fluctuating markets because fixed annuities guarantee your principal and interest.  The earnings on your fixed annuities are tax-deferred, so you don’t pay taxes on them until you start receiving payments.  Your money is private to everyone who might be looking, even the IRS.  As mentioned in the previous paragraph, fixed annuities are safe from lawsuits by creditors or anyone else.  Each state has different rules regarding this last benefit and federal rules apply if your annuity is a 401k or IRA investment.

There are also benefits to your beneficiaries after your death because your fixed annuity is a contract with your heirs.  Fixed annuities are not subject to the probate process upon death, a desirable feature if you’ve ever had the displeasure of dealing with probate courts.  Your money passes directly to your beneficiary and leaves out the headaches and added legal costs of probate.  Another benefit is that fixed annuity beneficiaries cannot be contested like other items in wills can be.  Your decision on who your beneficiary is remains after your death, no matter what else happens.

Students and parents of those entering college don’t have to include fixed annuity assets when filling out the FAFSA form.  This can make for a big difference in how much federal aid college students receive.  Annuity income is one of the few things that don’t have to be included in Question number 89.  Once you start receiving the income from your fixed annuities, some of these benefits no longer hold true (like the tax-deferral.)  But many of the added insurance benefits that you didn’t even know you were getting when you purchased your fixed annuity remain for the life of the contract.  An Annuity FYI expert would be happy to answer any questions you have regarding the benefits of fixed annuities.

Written by Rachel Summit

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