A commonly misunderstood product in the world of insurance and financial products is the fixed rate annuity. The product itself is actually quite simple, but the details of the contract have become rather complicated. Couple this with the latest financial gurus warning against the use of this type of annuity product, and investor’s ability to accurately assess whether or not this investment vehicle is right for them is greatly inhibited.
The fixed rate annuity is simply a contract with an insurance company in which you make premium payments into an account and they promise to return distributions to you at a fixed interest rate. These fixed payments can be distributed over the lifetime of the annuitant or will be distributed for a pre-specified period of years.
The duration of the contract is determined at the creation of the document, and is used to determine the size of income payments to the annuity’s beneficiaries. In a fixed rate contract, the insurance company will guaranteed an interest rate that the account will grow at. Addendums or other riders may allow the contract to produce at a higher rate than the guaranteed minimum, though this is done on a contract to contract basis.
Rates can vary widely between insurance companies and even the specific products types within each company. Before you purchase a fixed deferred annuity contract, make sure that you have done sufficient research on the policy that is right for you. Not only should the policy make sense in terms of your own personal financial plan, but you should take the time to explore different products from different companies.
If you have a trusted advisor that is contracted with numerous different insurance companies, they will generally do the legwork in helping you find the best interest rate. Ask them if they have done their due diligence and researched different products on your behalf. A good planner will have already narrowed down your search and provided you with a couple of different options.
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