Our series of real world scenarios continues.<\/p>\n
A bank executive talked my 90-year-old mother-in-law into \t\t\t\t\t\tpurchasing an annuity to increase her yield from a CD. Is this a \t\t\t\t\t\tmistake (considering her advanced age), or was it a good move to \t\t\t\t\t\tavoid probate in the case of her death?<\/strong><\/p>\n Whether the annuity<\/a> purchase was a wise move depends on the terms \t\t\t\t\t\tof the annuity she purchased. Call the insurance company and ask \t\t\t\t\t\tthem the following questions:<\/p>\n 1) What is her current interest rate, and what is the guaranteed minimum \t\t\t\t\t\trate in future years? The minimum rate should be at least a guaranteed \t\t\t\t\t\t3% return, and the company should have a strong renewal rate history \t\t\t\t\t\tif the contract is not guaranteed at a specified rate for the entire \t\t\t\t\t\tterm of the contract. Ask for a copy of their renewal rate history \t\t\t\t\t\tto see how they\u2019ve treated other policyholders in past years.<\/p>\n 2) Is there a Market Value Adjustment (MVA), and if so, is it waived \t\t\t\t\t\tat death? Some annuity contracts contain MVAs or excess interest \t\t\t\t\t\tadjustments. These adjustments can be positive if rates are lower \t\t\t\t\t\thistorically than when you purchased your contract, or the adjustments \t\t\t\t\t\tcan be negative in the event that interest rates are higher than when \t\t\t\t\t\tyou purchased your annuity. These MVAs can be very advantageous if the \t\t\t\t\t\tcontract was properly purchased. However, at death you want to make \t\t\t\t\t\tsure if it is negative the company will waive the negative MVA. Note: \t\t\t\t\t\tmost companies will pass along a positive MVA to the heirs in the event \t\t\t\t\t\tthe owner passes away.<\/p>\n 3) Are the surrender charges waived at death? \t\t\t\t\t\tMake sure her interest rate is pro-rata so that her heirs will \t\t\t\t\t\treceive 100% of the earned interest penalty free. Also, make sure \t\t\t\t\t\tthat there is a nursing home bailout and a medical bailout, so that \t\t\t\t\t\tif she becomes ill and needs to be admitted to a hospital or confined \t\t\t\t\t\tto a nursing home there are no penalties.<\/p>\n 4) Is she both the owner and the annuitant? Make sure she is. If they \t\t\t\t\t\tnamed an heir as an annuitant, some life insurance companies will \t\t\t\t\t\tnot allow owners and annuitants over a certain age, so agents and \t\t\t\t\t\tplanners and brokers will recommend that you name a younger owner \t\t\t\t\t\tor annuitant (i.e. a child) in order to qualify for the annuity. \t\t\t\t\t\tUnderstand that this may mean that the annuity will not be available \t\t\t\t\t\twithout penalty upon the death of your mother. In other words, if \t\t\t\t\t\tyour mother is not the owner and annuitant it is likely that the \t\t\t\t\t\tinsurance company will not waive any surrender fees or negative MVA \t\t\t\t\t\tupon her passing.<\/p>\n 5) What is the annual free withdrawal amount? As a rule of thumb, \t\t\t\t\t\tmost insurance companies allow for a 10% free withdrawal. However, \t\t\t\t\t\tin recent years some more restrictive plans allow for low or no free \t\t\t\t\t\twithdrawals during the surrender period. At age 90, your mother-in-law \t\t\t\t\t\tmay want income from her annuity to maintain her quality of life. \t\t\t\t\t\tIf this is the case with you mother-in-law, you\u2019d want an annuity with free withdrawals.<\/p>\n As with any investment whereby you can name beneficiaries, annuities \t\t\t\t\t\tallow you to avoid probate, which is a major benefit. Provided that \t\t\t\t\t\tthere are no-surrenders at death, a negative MVA is not applicable, \t\t\t\t\t\tand her required income doesn’t exceed the free withdrawal amount, \t\t\t\t\t\tthen she’s going to be just fine and this could be one of the best annuities<\/a> for her.<\/p>\n If you want to discuss in person with an licensed financial professional, please \t\t\t\t\t\tdo not hesitate to contact an Annuity FYI expert \t\t\t\t\t\tfor more information.<\/p>\n","protected":false},"excerpt":{"rendered":" Our series of real world scenarios continues. A bank executive talked my 90-year-old mother-in-law into purchasing an annuity to increase her yield from a CD. Is this a mistake (considering her advanced age), or was it a good move to avoid probate in the case … <\/p>\n