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Deferred Annuities
A deferred annuity is a vehicle for accumulating savings in order to eventually distributing the proceeds.
Variable Basics
Variable annuities have features of both life insurance and investment products retirement?
Taxation
The growth of the annuity value during the accumulation phase is tax-deferred
Company Default Risk
Consider the financial strength of the insurance company that writes your annuity contract.
Annuity Fees & Costs
Depending on the annuity, the advisor should expect 1% to over 10% commission on the lump sum amount.
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Annuity Company Default Risk
Examine the financial strength of the insurance company that writes annuity contracts. Insolvencies have occurred at over 60 times since the collapse of the Executive Life Insurance Company in 1991.
Insurance company defaults are directed by a collection of State laws. Annuity contracts are protected against insurance company insolvency up to a specific dollar limit, usually $100,000, but up to $500,000 in New Jersey, New York, and Washington. This protection is provided by the state Guaranty Association. When an insolvency occurs, the Guaranty Association steps in to protect annuity owners. Sometimes the contracts will be taken over and fulfilled by a solvent insurance company.
The state Guaranty Association is not a government agency, but States usually require insurance companies to belong to it as a condition of being licensed to do business. The Guaranty Associations of the fifty states are members of a national umbrella association, the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA).
A difference between guaranty association protection and the protection of bank accounts by FDIC, credit unions via the NCUA, and brokerage accounts by SIPC, is that it is difficult for consumers to learn about this protection. Usually, state law prohibits insurance agents and companies from using the guaranty association in any advertising and agents are prohibited by statute from using this Web site or the existence of the guaranty association as an inducement to purchase insurance. Some agents would using this protection to state that annuities are "State guaranteed," which they are not.
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