People often purchase fixed annuities for two main reasons: their principal is safeguarded, and they receive a fixed rate of return, along with the option for lifetime income payments. However, Bob Richards of Learn Bonds highlights additional benefits of fixed annuities in his article “Other Protections of Fixed Annuities.” One key advantage is that, unlike stocks, bonds, or mutual funds, annuity funds are generally protected from creditors and lawsuits in most states, even in cases of bankruptcy. While you hope never to face such financial difficulties, this lesser-known benefit of fixed annuities can provide valuable peace of mind.
Fixed annuity products are classified as insurance, meaning they come with state insurance protections. Unlike investments that are subject to market fluctuations, fixed annuities guarantee both your principal and interest. Additionally, the earnings on your fixed annuities are tax-deferred, so you don’t owe taxes until you begin receiving payments. Your funds remain private, even from the IRS. As previously mentioned, fixed annuities are generally protected from lawsuits by creditors or others, although the specific rules vary by state. Federal regulations apply if your annuity is part of a 401(k) 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
