Annuity Checklist

Annuity has proved its essence as the most suitable investment form for financial planning. Existing in various forms, like fixed annuity, variable annuity, immediate Annuity, deferred annuity and other, investment in annuities is facilitated by insurance companies. Here is the discussion provided to familiarize the knowledge of potential investors regarding annuity.

Fixed Annuity Interest Rate – A Volatile Entity?

In case of fixed annuity, the insurance company provides fixed interest rate for a small period of time. And after that, the rate is decreased with passage of time. In most general cases, the fixed rate is offered for 1 year time period only. This trend gives birth to a new term called banded rate Annuity. Here are some significant aspects of fixed annuity interest rate:

  • An alluring interest rate is offered for the first year of your investment
  • Along with that, the investor is provided with surrender period, which is generally seven years
  • For further years, the annuity issuer is prudent to decide the renewal rate of Fixed Annuity
  • This whole procedure is famously called "trust me" factor

By following this procedure, the annuity company cleverly binds you for seven years and you have to face the decreased interest rates offered by it. In order to get out of this problem, there are two ways out:

  • First, you must have the knowledge of renewal rate history offered by the company in past years. This will help you to have an idea about Annuity interest rate, which will be followed by the company in successive years of annuity investments
  • Other option is to search and locate companies, which offer fixed annuities with actual fixed rates for complete time period of investments. For this to happen, you need to find a right insurance company. Also, you must ensure that the surrender period and the guarantee period hold equivalent values for the investments

Let us learn this using a simple example. Suppose you make an investment of $10,000 and the insurance company offers you a banded rate Annuity with an interest rate of 7.9% for first year and no-guarantee interest rate for subsequent years. At the end, your investments will mature to an unimpressive amount of $12,883. On the contrary, a guaranteed fixed rate of 7% for complete investment time period will help your money to grow up to $16,057.

Unfortunately, if you are trapped in a banded rate annuity, you may shed away your disappointments by upgrading your annuity to 1035 Exchange or a competent transfer. This should be done, as the interest rates start slipping down in successive years of your Annuity Investments. Here are two important points to be taken into account to upgrade your annuity:

  • You must ask for the charges, which will be levied upon you in case you leave the current annuity plan
  • Also, you must take into account the time period during which, these charges will be paid

A significant suggestion by this Annuity Checklist is to wait for conversion of your annuity into another plan, until and unless the rates fluctuate to appreciable values. It is important to carry out complete financial analysis, before you decide upon upgrading your Annuity plan. This will help you to earn desirable returns upon your investments. There are many proficient financial advisors, who may help you to sail smoothly through the rough weather. These professionals are capable of suggesting most efficient transition plan, so that you become eligible of extracting maximum benefits for your investments.