There are a lot of moving parts involved with annuity products, especially some of the more complex varieties. So inherently, there are also plenty of questions that come along with a potential annuity purchase. This summer, Forbes magazine published an article about the seven questions you should ask before you buy an annuity product. LifeHealthPro took this information from two financial experts and expanded it to include what advisors should use to help explain these seven things to their clients. Peggy Bresnick outlined the “7 customer questions about annuities and how to respond” for LifeHealthPro.
Some of the most common concerns that people have about retirement are outliving their money, balancing the desire for market gains with the need to be protected from volatile markets and knowing the details of their annuity contract. These seven things are important issues to know about your annuity.
The first annuity question brought up by Craig. W. Lemoine, CFP and Jarrett L. Davis for Forbes was whether or not the annuity seller would be able to keep their promises. It’s important to research the ratings for any insurance company whose annuity product you are selling or considering purchasing. You can get financial strength ratings from Moody’s, Fitch, A.M. Best and Standard and Poor’s. Naysayers are often talking about the high fees associated with annuities, so consumers want to know how much all of their annual annuity expenses will be. You must discuss the administrative fees that pay for reporting, online security and account access. There are also mortality and expense fees that pay for death benefits. Consumers need to know any additional fees that come with riders for guaranteed minimum income, returns or inflation as well as any commission they will be paying.
It’s important to know what will happen to your account value over the course of a year if the market increases, decreases or remains the same. Contract value can be difficult to explain, but advisors can give you a good idea of what will happen to your account depending on the markets. Make sure that fees are included when you are given your account value. Many people wonder if a mutual fund or annuity product is best for their plan. You can determine this by figuring out the pros and cons of each product. While mutual funds usually cost less, they do not guarantee any income or protect any of your money from losses. Annuities, on the other hand, typically cost more but can offer guaranteed income, protection and even death benefits.
Another popular annuity question is whether or not the products are adjusted for inflation. Some annuities are inflation-adjusted while others are not. This benefit will usually cost you more in fees though. Consumers want to know what retirement income benefits are offered with their annuity products. Most guaranteed income benefits cost around 1% in fees annually. They provide you guaranteed monthly income for either a specific period of time or your lifetime. Make sure you know the fees associated with and any stipulations that come with your guaranteed income benefit.
You also need to know if there is a surrender period with your potential annuity product. If your client is considering an annuity, it’s crucial that you detail the amount of time that they have to leave their money untouched in the annuity so that they don’t pay a hefty surrender charge. Most annuities do allow a portion of the money to be withdrawn before a surrender charge is activated though. Surrender charges are another reason that it’s important to know the ultimate financial goals of clients before recommending an annuity.
Whether you are considering buying an annuity product or selling one to a client, it’s important to know the answers to these seven questions before finalizing anything. An Annuity FYI expert would be happy to help answer any annuity questions that you have.
Written by Rachel Summit