The Security of Annuity Insurance

If you've ever wondered how safe your annuity was, you'll be glad to know there's annuity insurance. Of course, it isn't called that. Annuities are created by insurance companies. Just like banks with FDIC, insurance companies have protection for their clients in the event a company goes bankrupt. It's called the state guaranty fund.

Each state has a guarantee fund to protect investors. Like the FDIC that levies payments from healthy banks, the funds come from hundreds of insurance companies that operate in each state. Since insurance companies often operate in several states, annuity insurance, or guaranty fund, have a national organization to co-ordinate the efforts of all the states. This organization is the NOLHGA, National Organization of Life and Health Insurance Guaranty Associations.

This organization has insurance guaranty associations from all states and territories. If an insurance company has financial problems, every insurance company accepts the distressed company's clients or invests money to help the distressed company until they can pull out of the financial spiral downward.

Knowing there's annuity insurance helps bring peace of mind to those that worry about the financial state of everything. You can't be too careful when it comes to investing your hard earned dollars, so knowing there's annuity insurance brings peace of mind.

Most people that invest in fixed annuities or variable annuities with guarantees are of the disposition and belief that it's better to be safe than sorry. If you're not prone to risking funds in you senior years, the annuity insurance and guarantees of fixed, indexed and variable annuities fit into your belief system and portfolio beautifully.

If you take a lifetime payment from an annuity, you in some ways also take annuity insurance. You have the insurance that you'll never run out of funds no matter how long you live. Some annuities, called inflation indexed annuities, also offer the option of increasing the payments as inflation erodes your annuity payment dollar.

Annuity insurance also comes in the form of guarantees on variable annuities. These guarantees are insurance that you'll never lose your principal and sometime receive a stated interest rate return, no matter how low the market drops. Some of the guarantee that your heirs will always get exactly what you put into the policy if not more if you should die in a down market.

Between the fixed annuity and the variable annuity stands the indexed annuity. These annuities use a specific index as their guarantee barometer. If that index, let's use the S&P 500 for example, increases, the owner of the annuity participates in the increase. The annuity insurance in this case occurs if the index drops. Then the owner of the annuity simply gets a stated guaranteed interest rate.

Jonathan Tyler writes about different types of insurance products including annuity insurance. Annuities provide investors with the benefit of tax deferral, as a way to gain extra savings for retirement. There are many such products on the market. Visit Jonathan's blog if you would like to learn more about your options or receive an annuity quote without obligation.

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The Security and Risk of an Index Annuity

A good addition to your retirement program is an index annuity. If you're risk adverse and want a guaranteed return but still worry about the ravages of inflation, the index annuity is perfect for you. Unlike a fixed annuity, you have the opportunity to increase your return in indexed annuities. Aside from some of the guarantees offered by variable annuities, you have the advantage of participating in the growth of a specific market index with none of the risk.

There are many different types of index annuities. The differences begin in the index they follow. Some use the S&P 500. This tends to be one of the more popular indices. While there are a variety of others, another popular index to follow includes foreign markets. Often these markets, particularly in growing countries are more volatile. If you had an index annuity back in the early part of 2000 that used the stock market in India as its index, your account would show dramatic growth with none of the potential of loss.

Insurance companies offer index annuities that provide a base interest rate. If the index selected increases, the owner participates in the growth at a specific percentage. If the market drops or remains flat, the owner of the policy receives the guaranteed interest rate.

Index annuities also have different provisions and guarantees. The guarantee rate tends to be slightly lower than those returns of fixed products, including those of fixed annuities. That is because of the tremendous potential for growth.

The amount of participation in the market growth varies dramatically from policy to policy. Some policies offer as little as a 30 percent participation rate but have a higher guaranteed rate. Other policies may offer a lower guarantee rate but go as high as 90 to 100 percent participation.

Depending on your concern of inflation and belief in the index, you select, it's best to shop for a product that fits your specific needs. The younger you are, the more important it is to increase the participation in the index. Inflation changes a good monthly income into pennies as prices increase and the buying drops. The elderly don't normally have the time it takes to erode an income to pocket cash but younger participants do.

If there's a chance you'll need some or all of the funds in a few years, you need to check two provisions in the policy. The first is the surrender period for the policy. An index annuity may have a surrender period as short as a year or two or as long as 15 years. Of course, the shorter the better if you believe you might need to access funds. You do pay for that privilege, however. Often the participation rate and base guarantee rate are lower when the surrender period is shorter. If you remove the funds early, there are often penalties that erode any earnings.

Some policies contain penalty free access to the funds. This access varies in amount and number of times it's available. It might be simply interest or a percentage that's an annual amount, once in the lifetime of the policy amount or cumulative amount.

When you look for an index annuity to fit your retirement program the best method is to know first what you need. After that, you should compare policies. The easiest way to do that is to use online sites that show a number of different index annuities at one time. Consulting an annuity specialist is also beneficial to compare the fine points of the policy.

Jonathan Tyler provides information and strategies for retirement. In this article he discussed the merits of an index annuity for retirement and how they differ from other annuity products. If you'd like to learn more about annuity insurance come see us.

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