Stan “The Annuity Man” Haithcock makes an annuity video for us weekly where he rants about certain aspects of the insurance industry. In his recent Marketwatch article, “Top 10 mistakes by annuity shoppers“, he offers advice to help consumers buy an annuity rather than being sold a product that isn’t right for them. You have to focus on what is important to you when looking at an annuity product and tune out sales pitches by celebrities and others who really don’t know about the industry.
The first mistake made by annuity shoppers, according to Stan, is that they look for a one size fits all product. Some unethical annuity salespeople will tout certain indexed and variable annuity products as one product that meets your every financial need. This is not the case with any financial product. Look at the guarantees associated with any annuity and use it to meet one certain goal. If there are other benefits associated with your annuity, great. But don’t try to use a one size fits all approach when it comes to buying annuities. It’s also important to shop around at different annuity carriers before deciding on one. Stan recommends shopping at a minimum of five insurance carriers before making your decision. Compare the contractual guarantees and costs associated with both.
Annuities are not a perfect product with no downsides. You cannot have your cake and eat it too when it comes to buying an annuity. Research the pros and cons of each type and make a purchase based on a product that matches the goal you are trying to accomplish. Sadly, there are people looking to sell a dream rather than reality so it is up to you to have a realistic mindset and work with a reputable advisor. Stan is a proponent of using annuity products only for their contractual guarantees. He says to use them for their risk transfer and to only purchase an annuity if you need to meet one or more of the following goals. Annuities should be used for principal protection, lifetime income, leaving a legacy or covering the costs long term care.
Stan does not think that annuities should be purchased solely for market growth. While you certainly might have a market gain on your variable or indexed annuity product, he believes that you should use the annuity for the benefits it offers that meet your goals. If you are looking solely for a product that offers market growth, Stan recommends investing elsewhere. He also believes that it’s important to start at the finish line when you are looking at annuity products. Determine first what contractual guarantee you want and when you want that guarantee to start. Once you know exactly what you want from your annuity product, it is easier to find the right annuity to help you meet your goals.
Some annuity products offer upfront bonuses and flashy riders to try and get you to make a purchase. Insurance companies aren’t really giving anything away to you for free, so these bonuses and higher than normal rates are being deducted elsewhere. This warning goes along with not expecting a product that is too good to be true. Don’t let flashy add-ons distract you from the guarantees you want in an annuity. It can be a big mistake buying an annuity from a low rated insurance carrier. It’s crucial to check financial strength ratings because your annuity guarantees are subject to your insurance company’s ability to pay your income. Select a carrier with a strong financial history.
You should never be pressured into buying an annuity. Find an agent that is willing to take the time to go over all of the contractual details and guarantees with you so that you don’t sign for a product that just isn’t right. Most annuity products do have a surrender charge period. Ask your agent to see products that have shorter surrender periods than the first one they offer. Annuities are long term investments, so it’s okay to have a surrender period. Just be aware that you can ask for a shorter time frame if you are worried about the length of time you were given. Annuity products are a good way to transfer risk from you to an insurance company and guarantee future income payments. There are more than fifteen different types of annuities, so work with a reputable annuity expert to find a product that matches your goals with its guarantees.