Key Questions Before Purchasing An Annuity

Some Questions to Ask Before Buying

If you've decided that an annuity makes sense for you, here are a few key questions to ask yourself before signing up:

Have you done some comparison shopping and considered all of your options? Because annuities are long-term savings vehicles, you'll want to make sure the company you pick will be around at least as long as you will. And, as you learned in the previous discussion, different annuities offer a wide range of choices, prices, features and flexibility.

Does the rate on a fixed annuity look too good to be true? You want a competitive interest rate at renewal time. If the company is offering bonus rates (a higher interest rate for a set period of time) make sure the underlying interest rate and the company selling the annuity are financially viable. Once the bonus rate term expires, there is no guarantee going forward that renewal rates will be competitive. Be especially careful if you are exchanging annuities.

What are the annuity's surrender fees and how long are they in place? If the surrender fee is high (typical fees are around 6-7% and decline over a period of approximately five-to-seven years), you could feel locked into a contract from which it will be costly to escape.

What is the track record of the funding options offered in a variable annuity? Don't be swayed by last month's top performer. Look for strong returns over a three-to-five-year period or more. Newspapers such as Barron’s and the Wall Street Journal – available in your local public library - publish rankings of various funding options on a regular basis. The history of various funding options also can be found in Morningstar and  Lipper publications, available in larger libraries. Remember, past performance is not a guarantee of future results.