Are Immediate Annuity Quotes Too Good to be True?
After twelve years filled with economic uncertainty, many retirees have become weary of income generating concepts, including those from online annuity quote engines. Despite the statements about providing an income stream for life, many retirees still wonder if these claims from immediate annuities sellers are too good to be true. How can they be sure that an insurance company, for example, will make good on its promise to send those income payments for life, or for the period of time selected?
The first step in sizing up annuity quotes is to determine the financial strength of the underlying insurance company. A company’s financial health is important; healthy organizations are likely to be there for you when you need them down the road. Always review the company’s ratings with firms such as A.M. Best and Standard & Poor's. Choose an insurance company boasting strong financial ratings. When receiving annuity quotes, if these ratings are not included, make sure you ask for them.
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The next step in assessing an annuity quote is to examine what part of the illustrated strategy is guaranteed. Is it the buyer’s principal, interest or growth rate, or income streams that are guaranteed? And, for each of these factors, is the guarantee for the buyer's lifetime or for a specified or limited period or time?
Other Annuity Quote Considerations
In addition to understanding the guaranteed portion of an annuity quote, there usually are other features to take into consideration.
Does the annuity quote include a death benefit to either your surviving spouse or to a named beneficiary? For example, if you were to die during the 2nd year of the contract, what happens to the unpaid premium? If you didn’t select any type of death benefit, the unpaid premium would be forfeited to the insurance company. If, however, you chose a 100% spousal benefit, your surviving spouse would continue to receive your current income stream for the rest of your spouse's lifetime. If you chose a period certain death benefit, such as 10 years, your designated beneficiaries would receive the remaining 8 years of income. Make sure when you receive any annuity quotes that you are clear which of these options you are being quoted.
As inflation can erode a retiree's purchasing power, consider whether the annuity quote includes inflation protection as an optional rider. For example, a 3% cost of living rider would enable your income stream to increase by 3% per year. You can receive annuity quotes with and without this option to judge for yourself whether it is a worthwhile option.
One popular strategy utilized by a number of retirees is to buy an immediate annuity to cover fixed household expenses. An annuity quote calculator can help you determine the amount of premium required to produce the income figure you have in mind.
Immediate annuity quotes are not too good to be true. But, as with any investment option, you need to understand the illustrated benefits and disadvantages. This will help decide whether buying an annuity is suitable in your financial situation.