Annuity Myths: Fact vs Fiction
In the past, the news media has shed a negative light on annuities in general as they steer people away from traditional, more high risk, investments and away from the stock market. While there is some truth to some of the more common myths about annuities, there is a lot of negative information that completely ignores the new products that are available, like fixed indexed annuities.
Myth: The issuing insurance company keeps all of your money when you die.
Fact: Many of today’s annuity products, like fixed index annuities, include death benefits that you specify when you purchase the product. In fact, with the exception of immediate annuities, all annuities offer some sort of death benefit.
Myth: Annuities are full of hidden charges and fees.
Fact: In most fixed index annuities, there are no direct fees involved at all. The only fees that may be presented are generally associated with value-added riders added on to your contract when it’s purchased. However, you may face surrender charges should you choose to withdraw early.
Myth: Annuities are complex and difficult to understand or own.
Fact: The truth is, some annuities are complex and without professional advice, can be difficult to understand. That’s why we recommend working with annuity experts before you make a purchase so you’re certain you’re getting the right product for your situation.
Myth: Annuities are only sold by aggressive, commission hungry sales people.
Fact: In the past, there was certainly some to that statement. If you’ve worked with a representative from a specific insurance company, they likely pushed one of a few products very heavily, rather than giving you a list of options. Today, you have the option to work with independent agents who work with a wide variety of different products from different insurance companies who can find the product that’s best for your specific situation, not just their wallet.
Myth: Surrender charges exist to benefit the insurance companies.
Fact: Surrender charges exist for one specific reason, to discourage premature withdrawals. Surrender charges actually help to boost insurance rates by doing just that. Surrender charges make it possible for insurance companies to take a long term approach to investing assets.
Myth: Returns on fixed index annuities are low.
Fact: The returns you see with your fixed index annuity are linked to an index like the S&P 500. When the market performs well, your annuity will have an opportunity to do well. When the markets plummet, you’re annuity will be protected from loss. The amount of interest credited during good years or bad is based on the contract you choose and the various crediting methods available. With a fixed index annuity, it’s important to remember that while you may not see a 150% return, you won’t lose money should the markets bottom out.