Things to Look for in Your Annuity Provider
In the aftermath of the financial crisis, annuities have seen a remarkable resurgence as people become more concerned with outliving their income. Over the last decade, the annuity marketplace has expanded significantly to accommodate the increased demand. The net result is that there are a lot more people searching for the right annuity from among a vast, and expanding universe of products. Access to information and rate comparisons online has certainly made the search somewhat easier, but, with the enormous number of choices available, it can still be a paralyzing experience. However, once you learn the things to look for in your annuity provider, your search can be made even easier.
Financial Strength and Integrity
There are literally hundreds of life insurance companies that offer annuities, but there are only a few dozen that have earned the highest ratings available from the independent financial ratings companies. Considering that your principal along with all of the guarantees that are offered in your annuity are backed by the financial strength and integrity of the issuing company, it only makes sense to go with the companies that are rated the best. And, the transparent world of the Web, all annuity providers recognize that they must offer the best rates and lowest expenses in order to compete. You are not likely to do any worse in terms of rates or expenses if you confine your search to those companies rated A+ or better by A.M. Best or AAA by Moody’s.
Superior Customer Support
One of the main criticisms leveled at annuity providers is the lack of good, responsive customer support. Some companies are very good at promotion and the sales process, but once they have you as an annuity customer, you are treated as a number. While that is not a frequent occurrence, it could happen to you if you’re not diligent in learning more about the level of customer support that is available. Ideally, you have a trusted and reliable financial professional who can help you navigate the customer service complex. Still, it is important to know that you have an 800 number that is well-staffed with friendly and responsive people knowledgable in annuities. In this day and age of instant online communications, it is probably best to work with a provider that is technologically equipped to handle online chat and email communications.
Interest Rate Mechanics
It’s one thing to know that your provider is crediting your annuity with a competitive interest rate, however, it is much more important to know how they go about setting the rates. Your initial rate is only credited for a specified period of time, depending on the type of contract. Once that rate expires, a new rate is set. Some annuity owners are shocked when, after their high initial rate expires, the new rate is suddenly lower than the market rates applied to CDs. Each annuity provider determines its own method for establishing the new interest rates. Sometimes it is based on a formula that incorporates a complex set of factors, or it can be based on some relationship to the prevailing market rates. In either case, it is important to know that there is a method and how it applies.
Because the long term performance of you annuity really depends on the ability of the annuity provider to maintain competitive interest rates, it would be important to know their minimum interest rate guarantee. In some respects it may be better to forego a high initial interest rate if the provider promises a higher minimum rate guarantee.
Most annuity providers are simply product manufacturers that are equipped with a distribution channel to deliver its annuity products. While annuity providers are required by law to ensure that match their customers with most suitable annuity product, some providers do a much more thorough job of helping their customers better understand their needs and educating them on the merits of the various annuity choices. Providers that take the time to ask questions about your current situation, your tax circumstances, your goals, and your investment allocation are obviously in the best position to provide meaningful guidance. If you find yourself asking more questions than your annuity provider, it may be time to find another provider.
Additionally, the more client-centric providers will be much more thorough in providing you with information about expenses, their interest rate mechanics and other items that usually buried in the fine print of the contract. Providers that are truly looking out for your interest don’t hold anything back. Although it is your responsibility to study the contract, some providers feel a sense of obligation to make sure you understand all of its intricacies. If you find yourself having to drag a lot of this information out of your provider, move on to the next one.
Of course, you want to make sure that you end up with a quality product that will perform well, and there are many aspects about the product itself which need to be explored and compared. Generally, if an annuity provider passes this test on all of the things to look for, you can be assured that your annuity product will be of high quality as well.