Choosing the Types of Deferred Annuity

Types of Deferred Annuity

There are two basic types of deferred annuity: fixed annuities and variable annuities. There are several variations on them.

Fixed Annuities 

Guarantee that your money will accumulate at a minimum specified rate of interest. However, the company will pay you a higher rate of interest if its investment experience is better than the minimum guarantee.

Variable Annuities

Differ from fixed Annuities in that contract owners direct the distribution of their money among several different accounts and their accumulated funds reflect the experience of those accounts rather than that of the company. Typical account choices are common stock, bond, mortgage or money-market accounts. 

If the value of the accounts increases or decreases, so will the amount accumulated. Variable annuities are more risky to the contract owner than fixed annuities, but there is a possibility of greater returns. Other types of deferred annuity combine the characteristics of fixed and variable annuities.

Annuities are sometimes sold as alternatives to investment vehicles such as certificates of deposit, money market accounts, mutual funds, etc.  There are differences between these products. If you die during the surrender charge period, the surrender charges are deducted from the amount the beneficiary receives. 

You should consult with your investment and/or tax advisor before making any decisions on purchasing this product. If you die during the accumulation phase of a deferred annuity, an amount usually at least equal to the amount you have accumulated will be paid to your beneficiary.  If you cancel the contract or withdraw some money from it, surrender charges may be deducted from the accumulation value. The amount you receive is usually referred to as the cash value. It is usually not a good idea to purchase a deferred annuity unless you are planning to keep it for more than just a few years.

Banks and Brokerage Firms

Products developed by Life Insurance companies are sometimes marketed through banks and brokerage firms.  The person who sells you a life insurance policy or annuity should be a licensed life insurance agent, and in the case of a variable annuity, a licensed securities dealer. 

If you purchase an annuity through these sources, you should ask for the name of the insurance company. Since they are the ones who will be managing your money. Life insurance agent, and in the case of a variable annuity, a licensed securities dealer. If you purchase an annuity through these sources, you should ask for the name of the insurance company, since they are the ones who will be Managing Your Money.

Finding a Good Buy

Guarantees

A fixed deferred annuity always contain guarantees. For example, it might guarantee that the interest rate on the funds accumulating in your policy will be at least 2%. The guarantees are conservative, so that the company will be able to pay you the guaranteed amounts, even if conditions are very bad. 

Today, most companies pay greater amounts than they guarantee, but do not promise to continue to do that indefinitely. Keep in mind that the non-guaranteed numbers illustrated in any future annuity growth tables may turn out to be lower or higher than those shown.

You should also ask questions about the amounts you will receive if you decide to surrender your annuity, and find out the difference between the accumulation value and the amount you will receive. It is important to make sure that you receive all guarantees in writing for both life insurance and annuities.

Suitability

Only buy an annuity if it is suitable for your circumstances. Consider your purpose in purchasing an annuity and whether an annuity is the best vehicle for achieving your financial goals. Make sure you are buying an annuity that fits your goals and circumstances.

You should consider:

• The extent to which purchasing an annuity will tie up your money and whether you will need to pay surrender charges to access sufficient funds to pay for living expenses, including emergencies which may arise in the future;
• Your age; income; liquidity needs; financial time horizon; intended use of the annuity;
• The extent  to which the annuity allows you access to your money in the future without your having to pay surrender charges or other penalties;
• The values, benefits, and costs of your existing investments as compared to those of the recommended annuity contract.

The law requires insurance agents to ask you questions about your financial situation to make sure the annuity. You are purchasing is suitable for your needs and circumstances. Insurance companies and insurance agents are prohibited from selling you an annuity unless. There is a reasonable basis to believe the annuity is suitable based on the information you provide to the agent.

Agents

Life insurance agents are licensed by the State, and may represent one or more companies. If you use an agent, choose carefully. Agents earn a commission on your Business, and should do more for you than just sell you a life insurance policy or annuity contract. 

They should assess your individual needs, answer your insurance questions, and help you establish your goals. If you are considering the purchase of a variable annuity. The agent should have an insurance license and a registration with the Financial Industry Regulatory Authority (FINRA) to sell variable products, which are considered to be securities. You should receive a prospectus describing the investment alternatives available to you.

Reliability and Stability of Companies

In the past, high-risk investment strategies have threatened the solvency of some companies and thus the safety of policy benefits. Be sure to check out independent rating services’ rating of any life insurance company you are considering. Before purchasing a life insurance policy or annuity contract. Also make sure that your life insurance company is licensed in California.

Final Wording: Types of Deferred Annuity

Owners of annuity contracts or life insurance policies issued by companies licensed in California. May be partially protected by the California Life and Health Insurance Guarantee Association (CLHIGA). In the event of the failure of the insurer. If you need further information on CLHIGA or California Insurance Code Section 1067.02 (c). That explains the monetary protection under CLHIGA, then contact the CDI via the methods provided on the last page of this brochure.