Tuesday February 11, 2014

A simple guide to the top 10 index annuity product factors

Written By:Keith L. Collins in Holden, MA, Founder of Keith Collins Inc.

Offering long term benefits that ensure you have a steady flow of income, indexed annuity products can be the difference, for some, between a relaxing and a stressful life. With a multitude of indexed annuity products available today, we understand that it can be difficult making the right choice. With plenty of numbers, calculations and clauses, selecting a product is rarely a simple task. However, we hope to make it simpler by offering a breakdown of the top 10 factors existent in almost any indexed annuity products available in today’s market.

1 – The Index

When selecting any index-annuity product, the primary factor of consideration is the index itself. While many companies may simply offer the S&P 500 index as the linked index, others offer a vast range of indexes. For example, some may have proprietary indexes that are a combination of a number of national or international indexes that can, at times, include hundreds of different stocks.

Always ensure that you have the right index in mind. Always analyze the indexes provided and select a balance between risk and payout.

2 – Dividable Index

Most indexed annuity products require you to link your annuity product with a single index. Fortunately, there are many that provide the option to divide your investment into 2 portions, 2 different indexes. While for some, this may reduce the overall payout, it adds an entirely new layer of protection to your product. In other words, in the event of one index falling, the secondary index can still ensure a higher rate of return.

3 – Monthly Income

When selecting an indexed annuity product, the monthly income is one of the most important factors you need to consider. In many cases, products offer a simple overview of the income, showing earnings of a certain amount per X amount of accumulation value. For example, while one product offers $230 per $50,000 accumulated, others may offer $255 instead. Always choose the highest product, when all other factors are kept constant.

4 – The Initial Guarantee

For many indexed annuity products, the initial guarantee is an essential component determining the rate at which your investment grows. Different products generally have different initial guarantee periods that can range from a year and can go up to 10 years.  This allows you to better plan for the future.

5 – Payment Options

When selecting an indexed annuity product as a lifetime income stream, it is essential to realize that different products offer different payment options. Choosing the right option not only ensures a higher return but can ensure successful financial planning. The most common payment options are monthly, quarterly, biannually, annually, point-to-point or declared interest.

6 – Flexibility

Flexibility is one of the primary factors of consideration when selecting an index-annuity product. This is largely because flexibility and payout are interlinked. In many cases, while you may be granted more freedom, you also receive relatively less in terms of payout. The most common flexibility options include:

Payment durations – Choosing between Life only, Life with Period Certain, Joint and Survivor Life and Period Certain payment durations.

Customizability – While many indexed annuity products are available “as is” with minor options, others offer complete customizability. This includes the index, division, payment option, rates, flexibility options, no-chargeable withdrawal options, convertibility and crediting methods.

7 – Withdrawal Charges

Irrespective of your level of income and your general health and expected life expectancy, we understand that you can face emergencies at any given time. As such, index-annuity products offer differing withdrawal charge rates that vary depending on year and amount. In fact, some do not charge at all for a certain amount. Some even allow you to withdraw up to $250,000 from your contract free of charge, depending on the situation.

8 – Convertibility

Many indexed annuity products offer solutions resembling an income rider but allow it to be converted into a lifetime income stream at the choice of the holder. However, note that this convertibility option is usually provided at a certain year. For example, some products allow you to convert your indexed plan into a steady income stream after 5 years while others may do so at 7 years.

9 – Surrender Options

In case you need to surrender your product, there are generally multiple surrender fees that accompany the decision. For example, many may deduct a percentage from the principal amount before returning your money. Fortunately, some products offer varying surrender options, even adding guarantees that ensure that your surrender fees are deducted from your accumulated interest rather than your principal amount.

10 – Death Benefits

In most cases, many choose indexed annuity products that offer lifetime income streams. However, what happens when the holder dies? What happens to the money? Well, that depends on the indexed annuity product. While some products provide lump sum amounts to the beneficiary when the holder dies, others provide a slew of payment options and some don’t simply cease when the holder dies.

Always view your options upon your death. Some products offer improved benefits that guarantee your beneficiary receives a high minimum payout or ensures the value does not decline while still providing a high income stream.

If you plan to acquire an indexed annuity product, ensure that you have the 10 factors above in mind. More often than not, they can mean the difference between the right and the wrong indexed annuity product. It is highly advisable to seek the advice of a professional before acquiring an indexed annuity product. They will ensure that you really are getting the best bang for your buck.

To learn more from this educator, click here (Keith Collins).

About the Author:

Keith Collins is the President and founder of Keith Collins, Inc., which is an independent firm specializing in retirement income planning and Estate planning. For over 20 years, Keith Collins, Inc. helped clients protect their assets and maximize their retirement income in the Central Massachusetts area.

For more information, visit the website at www.keithcollinsinc.com or contact Keith toll free at 888-508-3736.