ANNUITIES - INTRO

The annuity holds a special place in the realm of insurance products. Its targeted purpose-to provide a stream of income payments one cannot outlive-makes the annuity a staple tool in retirement planning. Favorable income tax treatment supports the use of annuities for retirement planning. For the right person, a deferred or immediate annuity may be the perfect solution to a retirement savings or distribution need.

However, no financial product is appropriate for everyone. Like any insurance product, annuities carry charges, fees, and other costs that are not always apparent but impact values nonetheless. There may be stiff penalties for surrendering the contract prematurely and adverse tax consequences under some circumstances. When an annuity is sold for the wrong reason, the consequences can be expensive and time-consuming for everyone-especially the annuity owner.

Most insurance agents and brokers (known as producers) are ethical professionals who understand there are limits to the annuity's suitability, but cases like the previous examples do arise. To shield California consumers from the unethical or uninformed trade practices of the few, a new set of sales and marketing restrictions have been implemented through the California Insurance Code (CIC). These new rules were brought to law in 2003 through Senate Bill 620 and became effective January 1, 2004.

In brief, annuities provide the annuitant with a stream of income, usually for life, in return for a substantial lump sum payment by the annuitant (or other party).

ANNUITIES, as seen by Wells Fargo Bank (wellsfargo.com):

An annuity can help you accumulate tax-deferred earnings as part of your overall retirement plan. Annuities offer the opportunity for lifetime payments and tax-deferred earnings, and provide a guaranteed death benefit for your beneficiaries. All guarantees are backed by the continued claims-paying ability of the issuing insurance company.

Why own an annuity?
You may want to consider investing in an annuity as part of your long-term financial plan if: 

• You're in a higher tax bracket, and want to defer additional income.

• You've reached your deductible limit on all your retirement accounts and wish to save more for retirement. 

What is an annuity?
An annuity is different from most other retirement savings vehicles — it's actually a contract between you and an insurance company. In return for making one or more premium payments, the insurance company agrees to provide you an income stream — usually during retirement. You can elect to receive payment all at once or as a series of payments, even for the rest of your life.

Variable or fixed annuity?
An annuity is a contract between you and an insurance company, under which you make purchase payments to the insurance company during the “accumulation period” and the insurance company agrees to make periodic income payments to you, either beginning immediately or at some future date, during the “income period” (also known as “annuitization”). You may select the date on which income payments are to begin (the “annuity date”).

Annuities are designed for long-term investing to help meet retirement and other long-range goals. Annuities are not suitable for short-term goals because substantial tax penalties and early surrender charges may apply if you withdraw your money early. In addition, withdrawals prior to age 59½ may be subject to a 10% IRS penalty.

A variable annuity allows you to choose from a variety of sub-accounts that invest in stocks, bonds, and money market instruments. Your earnings and payments will fluctuate depending on the performance of the sub-accounts you select, and may be more or less than the original amount invested.

With a fixed annuity, you receive a fixed rate or return on your premium payment. 

All guarantees are backed by the continued claims-paying ability of the issuing insurance company. 

Note: Under no circumstances will Equidigm's provided topics and perspectives intended to persuade, indoctrinate, or enlighten producers on a particular philosophical, political, or public policy position. Nothing in this course is intended to imply that one insurance company's annuity is better or worse than another's. The suitability of any company's annuity can only be determined after examining the needs and circumstances of the potential buyer.