Is an Annuity Right For You?
NASHVILLE – As National Retirement Planning Week (April 7- 11) quickly approaches, Commissioner McPeak is offering Tennesseans insight regarding annuities. Annuities can provide a steady income after retirement and can be beneficial, but they can also be confusing. If you are thinking about buying an annuity, the Tennessee Department of Commerce and Insurance (TDCI) and the National Association of Insurance Commissioners (NAIC) offers the following comprehensive guide to help determine if an annuity is right for you.
An annuity is a contract in which an insurance company agrees to make a series of payments in return for a premium (or premiums) that you have paid. Many consumers buy annuities so that they will have a regular income after they retire. An annuity is an investment and shouldn’t be used to reach a short-term financial goal. Remember, buying an annuity may or may not be right for you.
“Make sure you contact a licensed or registered agent or broker to find out whether an annuity is the right choice for your financial future,” Commissioner Julie Mix McPeak said. “If you have questions regarding retirement planning, you should consult a reputable and registered financial planner to make sure you are on target to meet your goals. You can check your agent, broker, or investment advisor’s status by calling TDCI to verify their license/registration with the State.”
There are several types of annuities, all of which carry varying levels of risk and guarantees. To find the annuity that will best suit your needs, it is important to know the difference between each and the benefits offered.
• Single Premium Annuity: You pay the insurance company only once.
• Multiple Premium Annuity: You pay the insurance company multiple payments.
• Immediate Annuity: You will begin to receive income payments no later than one year after you pay the premium.
• Deferred Annuity: After the initial savings phase, you receive income payments once you choose to receive them.
• Fixed Annuity: Your money, minus any applicable charges, earns interest at rates specified in your contract.
• Variable Annuity: The insurance company invests your money, minus any applicable charges, into a separate account based upon the amount of risk you want to take. The money can be invested in stocks, bonds, or other investments.
• Equity-Indexed Annuity: A variation of a fixed annuity in which the interest rate is based on an outside index, such as a stock market index. The annuity pays a base return, but it may be higher if the index increases.
Buying an Annuity
As with other major purchases, it’s a good idea to shop around and compare information for similar products from several companies. While you do your research, keep detailed records and get all quotes and key information in writing.
When you are ready to purchase an annuity, carefully review the contract with your agent or broker. Ask for an explanation of anything that you don’t understand. Be sure you are aware of all of the terms and conditions such as surrender charges and/or cancellation penalties.
Don’t Be Pressured
Unfortunately, some insurance providers use inappropriate sales practices in an attempt to take advantage of uninformed consumers. Some common red flags include relentless sales pitches that pressure you into buying a product quickly or a deal that seems too good to be true.
The best way to protect yourself is to research the agent and company you’re considering hiring and:
- STOP before writing a check, signing a contract or giving out personal information.
- CALL the Tennessee Department of Commerce and Insurance at (615) 741-2218; and,
- CONFIRM that the agent and company are registered and/or licensed to write insurance in Tennessee.
Contact the Tennessee Department of Commerce and Insurance’s Insurance Division at (615) 741-2218 or (800) 342-4029 if you have any questions about purchasing an annuity.
The Department of Commerce and Insurance works to protect consumers while ensuring fair competition for industries and professionals who do business in Tennessee. Follow us on Facebook, Twitter and YouTube for a daily dose of fire prevention tips, consumer affairs information and much more!