A product of many myths and misconceptions, in the insurance and financial planning world, is the fixed rate annuity. Understanding what one of these products is and how they function is actually an easy process; however, what tends to confuse some investors who wish to become annuity buyers are the contract’s details. Not helping the annuity’s reputation, many financial planners and advisors are warning their clients who are annuity buyers to completely avoid annuities.
For people who may be unfamiliar with the product, fixed rate annuities are a type of contract between the contract’s investor and the insurance company where a person makes monthly or scheduled payments that get deposited into in a special type of account. In return, the insurance company promises to distribute these payments to the annuitant after a specified period of time or during the course of the annuitant’s lifetime.
While all annuity contracts vary, whether variable or fixed rate annuities a contract with its duration determines the when, how and the amount of income will be distributed to a contract’s beneficiaries. Should the contract specify the annuity has a fixed rate, the interest rate will be guaranteed at a non-changeable rate by the chosen insurance company. A feature not offered with every annuity, some have special addendums and other clauses that inform persons entering into the annuity contract that returns will be higher than the offered minimum return rate.
As with all types of financial planning products, to stay competitive, rates on different kinds of annuities can vary among competitors as well those offered by the same company. Before entering into any kind of fixed deferred annuity obligation or contract as an annuity buyer, make sure an annuity and its terms have been fully researched; by yourself, as well as a qualified financial planner. Moreover, don’t purchase the first annuity that appeals to you without comparing at least some similar annuities offered by different insurance organizations. You’re also going to want to find the best annuity rates possible for you annuity investments.
Prospective investors with established advisors can have their advisor research several different plans to discuss the pro’s and con’s of each plan with their clients before entering into any contract. Make sure you understand clearly and have the different types of annuities explained well by your advisor. Also if you plan to borrow against your annuity with an annuity loans contract, be very aware of the implications of such an action. This way, the tedious research into each company has been performed yet the client is still in control where to invest his or her money.