How to avoid the Traps and
Gimmicks
Excessive Surrender
Penalties
Many companies have large penalties because agents demand
large commissions. The
general rule of thumb that I go by is that your penalty
should not exceed than one year of
interest for your product? Many fixed annuities have a 15 to
20 year penalty and the
penalty percentage can be as high as 35%. This is very
excessive and you should go running
out the hall screaming, "Thief, Thief," if any
agent tries to sell you one of
these. An acceptable penalty might be 8% interest therefore
and 8% penalty for 8 years.
Many agents use the justifier, "You aren't going to
touch this money until you are 59
1/2 are you?" this is simply not good thinking. Try to
keep your funds as liquid as
possible.
Bonuses
Annuities
These annuities are the latest thing to fool you. They
have a first year interest rate
that seems too good to be true. It is to good to be true,
because after you have had these
annuities for over a year look out! You have the surrender
penalty to keep you loyal and
they have no incentive to keep you happy. The renewal rate in
these products is always at
least slightly lower than their other annuities to cover the
acquisition cost. Look at the
difference in the example.
Two-tiered
Annuities
This is a very tricky annuity that can have many
different interest rates. The
only interest rate to compare is the cash value rate or the
surrender value rate. All
other rates of return on your statement are usually full of
bull, or at the very least
highly suspect. Avoid this type of annuity at all costs, and
get out as soon as possible.
The unique thing is the penalty in these products always
grows, even after you are 59 1/2.
Switching companies every year
This is silly. Most often an agent will tell you
that in order to allow you to
borrow against your policies you should only put in $10,000
per annuity. What he is really
saying is in order for him to get a bigger commission he
needs to sign you up for a new
annuity each year. By the way, if you do have more than 50%
of all your annuities out on
loan you are violating the IRS law and you could be in big
trouble,
NOT YOUR AGENT.
Poorly rated "weak"
companies
Many agents use these companies for better
commission. If the company is not
over $10 Billion in assets and doesn't have an A+ Rating from
AM Best, get out of Dodge.
Annuitizing
Never Never Never annuitize! It gives complete and
utter control to the
insurance company. Only do it if you are wanted by creditors
or are a menace to yourself.
