20 annuity tips


When it’s time to buy or sell an annuity, how do you know who to work with and what resources to use? Here are twenty great tips to make sure that you know what you need to know about managing an annuity, or buying or selling one:

1.    Don’t rush things. This is one of the best tips for those looking to buy or those looking to sell. Those who have an annuity and need money right now might be tempted to hurry up and sell to the first company or buyer that they find, wanting to get the money in their bank as quickly as possible. This can lead to a number of problems, however, the biggest of which being you won’t have time to really research before you sell to make sure you are getting the deal that is best for you. Annuity buyers will run into these same problems. By not researching all of their options, buyers may find that they make a purchase that just isn’t right for their needs.

2.    Take plenty of time to shop around. Again, this goes for both buyers and sellers. Sellers who want to unload their annuity and take a lump sum instead of the monthly payments may decide to just sell to the first company they find. While this is fine, if the first company that you find really is the best company for your needs, in general, companies that make the most buzz are not necessary the companies that will offer you the best terms for your annuity. Even if you find an offer you like, make sure to look at a few more companies and see if they can do better than what the first company can offer. The same goes for buyers looking to purchase an annuity as an investment.

3.    Make sure to consult with any stakeholders. While your children or spouse might not directly benefit from the annuity, they may indirectly benefit from it in the form of monetary support or money left after you pass away. If you feel that you need help choosing a company or buyer to work with, asking those who have some stake in what happens with the money is a good way to make sure that you are choosing a system that works not just for you, but for anyone else who might eventually benefit from the money.

4.    Ask for professional help. Not everyone likes to ask for help—and that’s fine. It can be, however, a roadblock when it comes to selling or buying annuities. Professionals who have worked in this business for years are more likely to understand the offers you are seeing and will be able to advise you which one to take depending on what exactly you are trying to do with the money. Pick a professional who is not trying to pressure you into doing something you don’t want to do, but who will take your needs and desires into careful consideration before making a recommendation.

5.    Don’t put all of your eggs in one basket. This tip is primarily for those looking to buy annuities as an investment—annuities should not be your only investment. As with any type of investing, it is best to have a few different avenues that allow you to have a few different streams of income. This can, however, be just as applicable to sellers. While selling your entire annuity might sound like a great idea, in reality, you may want to hold on to some of your payments, especially if your annuity is acting as your income right now.

6.    Understand what you are signing up for. Many people who choose an annuity as the result of a settlement or other insurance issue do not actually understand what they are getting themselves into. There are a lot of moving parts. There are riders and caps, charges and fines. All of this information can color whether or not this option is right for you. Before making any decisions, you have to do the research and determine whether or not what you are looking at is what you actually need.

7.    Be careful about what you are investing. Those who are buying annuities or who take an annuity over a lump sum from their insurance companies, may not take the time to really think about the money. Obviously, the money is the impetus behind the entire exchange, but many people don’t step back and actually take the time to make sure that they know what they are going to do with the money. Many buyers will put all of their savings into purchasing an annuity and will not reserve any rainy day funds. Those with an annuity might spend all of the income they make immediately, again, without keeping any back for emergencies. Make sure you always have a contingency plan.

8.    Consider your costs of living. For both buyers and sellers, your main concern should be finding a solution that covers your costs of living. Those selling their annuities should consider whether or not the lump sum they will take right now is enough to cover the costs of living before they can find some other type of income. Buyers should not be so invested in a large payout that they buy more of an annuity than they need.

9.    Consider your personal financial needs. Too often, when selling their annuities, people try to predict what the economy is going to look like a year, five, or ten down the line. This can stagnate a seller. Instead of worrying so much about what future finances are going to look like, sellers need to worry about their individual financial needs. If they need a large lump sum now to cover an unexpected cost or to pay off debts, selling that annuity may be the very best options.

10.    An annuity is, at its core, a contract between you and an insurance company. This means that you need to carefully consider your role in that contract and what you want its terms to be. Many people sign their annuity contracts without even really looking at them. This can be an extremely dangerous behavior, even if you are, ultimately, getting the money that you want or need. Before signing a contract, you need to know what that contract says and how it will affect you as the beneficiary of that annuity. Don’t be afraid to ask questions or to voice concerns. Just because the insurance company is large and powerful doesn’t mean you aren’t allowed to challenge them.

11.    Know that there are there types of annuities. Those who are new to annuities might not know that there are actually three types of annuities. These are fixed, indexed, and variable. A fixed annuity is the most common, and simply guarantees that an insurance company will pay you a certain amount of money, over a certain amount of time. An indexed annuity, on the other hand, ensures that the insurance company pays out a certain amount of money, based on how a specific stock market index performs. The variable annuity, on the other hand, allows you to decide how to invest your money. Some choose mutual funds, others may still choose the stock market.

12.    Most annuities are designed to outlive their beneficiaries. An annuity is a great way for those who want to retire or those who have retired and need a steady stream of income that it is impossible to outlive. Some investments do not provide enough money to live on and many investments simply don’t provide the returns that a person would need to live on them. Understanding that most annuities are designed to outlive the people that benefit from them may help decide when to buy and when to sell.

13.    Look for an annuity with low fees and management services. Unless you want the insurance company to be very hands on with your annuity (which will require higher fees), look for an annuity that has very low fees.

14.    Ask about tailoring your annuity to your needs. If you are considering buying an annuity or are being offered your settlement payments in annuity form, you need to ask about options that allow you to tailor the annuity to your needs. Most annuities are structured so that they can be tailored specifically for the person who is going to benefit from them. Before you just take what is being offered you, ask if there are options that can allow you to tailor the annuity to meet your financial obligations.

15.    Always read any fine print. Most companies will be very up front with you about their policies. Some, however, will not be. Those that are not up front with you about their policies will try to hide the information they don’t want you to read in the fine print of your contract. If you are selling your annuity for a lump sum, you absolutely want to read all of the fine print in anything you are asked to sign. Just as you should not rush into anything, you should also not rush out of anything. Ask the company (or an objective professional) to explain anything you don’t understand.

16.    Know why you want to sell. If you are thinking about selling your annuity, you should have a firm grasp on why you want to sell. Why? Because this will help you find a solution that best meets your needs. If you are looking for a lump sum to cover an unexpected cost or you are looking to pay off a debt, this knowledge will dictate what types of offers you look at.

17.    Know all your options. In general, the option most often offered to those looking to sell an annuity is to take a percentage of whatever is left in the annuity and forfeit the rest to the buyer. This is great for the buyer, who will eventually make money off of that annuity. This might not be the best plan for the seller, however. You don’t have to sell your entire annuity—you can sell just some payments or a certain amount of money and keep the rest in your annuity.

18.    Understand that selling your annuity does come along with its own costs. Like everything in this world, selling your annuity does not come without its own costs. Don’t let this discourage you if you really do need the money in a lump sum—but do let it drive to making sure that you find the very best deal for you and your annuity. There are fees involved and the entire process can take quite a bit of time, so don’t jump in with both feet until you understand the monetary and time costs involved.

19.    Check and double check. Before signing anything, as we’ve said before, you need to be absolutely sure that the contract includes the terms that you need and that the solution, in general, is the best one for your situation. You need to check and double check every step of the process, whether you are buying or selling. Don’t get so excited that you blaze through the process without really stopping to think about the repercussions of what you are doing and its rippling effects.

20.    Don’t let a big company pressure you. These companies know what they want to do and they know what they want you to do. They have set up a system in order to get you to sell what they want you to sell or buy what they want you to buy. Don’t let a big company take control of you—you need to stay in control. If you feel that a company is trying to pressure you into taking a certain deal, it’s probably best to step back and start looking for someone else to sell to. That company does not have your best interests at heart.