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Is An Annuity Right For You? I.I.I. Podcast Suggests Questions To Ask Before Purchasing An Annuity

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For the Right Situation, Fixed Annuities Can Provide Financial Stability

INSURANCE INFORMATION INSTITUTE 
Contact: Press Offices
New York: 212-346-5500; media@iii.org 
Washington, D.C.: 202-833-1580 

NEW YORK, April 9, 2009 — In order to help consumers understand annuities and how they fit into their retirement planning, the I.I.I. has created a podcast that outlines the six most important questions individuals need to ask themselves before they purchase an annuity. For many, fixed annuities are a smart choice, but annuities are not right for everyone, according to the Insurance Information Institute (I.I.I.)

Falling stock prices and continued economic uncertainty have pushed sales of fixed annuities to record-breaking levels. According to LIMRA, a nationally recognized firm specializing in financial products, sales of fixed annuities climbed 47 percent in 2008 as compared to 2007, and are expected to continue growing in 2009.

An annuity is an insurance product intended for long-term financial objectives. There are several different types of annuities: some guarantee principal and a minimum interest rate plus the possibility of additional interest; others invest in the stock market and provide variable returns.

"Most people buy deferred annuities, which are basically tax-advantaged products for accumulating money, but increasingly people are buying immediate annuities (also called "income" or "payout" annuities)," said Steven Weisbart, senior vice president and chief economist at the I.I.I. "These annuities pay out an income that is guaranteed to last as long as you live. Only an annuity can make that guarantee. If you’re retired, some immediate annuity income is probably right for you although, as with deferred annuities, suitability will depend on several personal factors."

All annuities are regulated by state insurance commissioners, and variable annuities are also regulated by the U.S. Securities and Exchange Commission. Insurers are required to take various customer characteristics into account before suggesting a suitable product. State laws also have what is called a "free look" period, usually from 10-30 days, during which an annuity can be returned for a full refund with no strings attached.

The I.I.I.’s Consumer Spokesperson, Jeanne Salvatore pointed out that, "Annuities provide powerful benefits, but they have limitations, as well. Whether or not an annuity is right for you will depend on several factors such as your age, your health and how much money you have in the bank."

Before buying an annuity, contact your state insurance department to see whether it offers an annuity buyers guide for your state. And check with independent rating agencies such as A.M. Best or Moody’s to determine the financial health of the insurance company you’re buying the annuity from. For more, see < a href="/individuals/life/buying/strength/">How can I assess the financial strength of an insurance company?

"It is also important that you work with a well-regarded agent or financial planner who takes the time to answer your questions," pointed out Salvatore.

If you are thinking about buying an annuity, the I.I.I. suggests that you ask the following six questions and discuss the answers with your agent or broker and/or your financial advisor:

  1. Am I comfortable with the risks involved in this type of annuity?
  2. Do I have an emergency fund?
  3. What will I be charged—or what benefits will I lose—if I withdraw money early?
  4. Am I sure that this annuity is good for someone of my age, health and financial situation?
  5. Am I buying from a company that is financially sound and licensed to do business in my state?
  6. What happens to the money if I die?

For the I.I.I. podcast, go to Six Questions to Ask before You Buy an Annuity. It can be viewed online or downloaded to a PDA for easy reference.

For more information about annuities and insurance, go to the Annuities section of the I.I.I. Web site.

The I.I.I. is a nonprofit, communications organization supported by the insurance industry.

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