Paclean & Sweep Investment

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.

Client Centric

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.

Summary

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.

It seems almost inconceivable that, not very long ago, we managed to get through life without the Internet. One thing for certain, when we were left to our own devices to shop, compare and investigate products, we were not as efficient, nor were we as well informed as we are now in the Web-wired world. Financial products are especially bewildering products to shop for as much for their complexity as for the vastness of the financial universe. And, arguably, there is no more complex financial instrument with as vast a selection than an annuity. Without the Internet, finding the best annuity rates was as difficult as finding a needle in a haystack. Now, finding the best annuity rates online can be done in just a few clicks of the mouse.

Although the Internet has shortened the distance between consumers and the best selection of annuities, it is important not to have any illusion about the difficulties that remain even with the online tools that are available. It doesn’t change the fact that annuities are still complex vehicles, and that there is a vast selection from which to choose the right one for you. It is still vital that, before you try to narrow down your choices, you do your homework in order to understand how to recognize when you have found the best annuity rate for your circumstance.

Know Your Annuity

The most essential knowledge you can have going into a search for annuity rates is just what type of annuity you need for your specific financial objectives. Within the universe of annuities that are many apples and oranges and other varieties that perform very differently. It is critical that you first have a clear understanding of your particular needs and the objectives you want to achieve.

Immediate Income Need:

Annuities have been used throughout time for providing a stream of income that is guaranteed for life or for some specified period of time. The current nomenclature for these types of annuities is “immediate annuities” based on the fact that, once a deposit has been made with a life insurance company, the income can begin immediately. The amount of income received is determined by calculating a payout amount which is derived from the length of the payout period, the total amount of the annuity deposit, and an interest rate that is fixed for the term of the annuity.

The key factor in the equation is the interest rate which will vary from one annuity provider to the next. Generally, when searching for immediate annuity rates, you won’t see the actual interest rate; rather, you will only see the payout amount that the interest rate will generate. For comparisons sake then, the higher the payout amount, the higher the interest rate that is being applied.

Accumulation for Future Income Need:

If your need for income can be deferred into the future, you can still use an annuity to accumulate the capital you will ultimately use for an immediate annuity. A deferred annuity enables you to accumulate funds on a tax-deferred basis which will allow them to grow faster than if they accumulated within a taxable savings vehicle. The additional tax advantage of using a deferred annuity is that, when you are ready to convert your accumulated funds to an immediate annuity, there is no tax consequence – your funds will continue to accumulate tax deferred until they are received as income.

As with any accumulation vehicle, the rate of return, or interest rate, is a critical factor for ensuring that your funds are working as hard as possible within your risk constraints. Obviously, the higher the credited interest rate is, the harder your funds will work. When comparing deferred annuity interest rates you will be comparing the actual rate of interest which, again, will vary from one provider to the next.

There More to the Interest Rate Story

If it were as simple as comparing the stated interest rates side-by-side, this article could end right here. Unfortunately, the stated interest rate is only a small part of the story. Beneath the surface, you will find several different ways that interest rates are applied. Some are guaranteed for a certain number of years. Some are renewable annually. Some offer a high “teaser rate” which can drop precipitously after a year to a lower, non-competitive rate. Sometimes there is a bonus rate that is applied based on the size of your deposit. When an interest rate guarantee expires, a new rate is credited, which can be higher or lower than your initial rate. Most annuity contracts include a minimum rate guarantee which prevents the rate from dropping below a specified floor. For comparison purposes, it is important to consider all of the factors to ensure the best long term performance of your annuity.

The other key consideration is the flexibility of the surrender provision which determines how much of your funds are available for withdrawal without penalty. In some cases, an annuity that credits a highly competitive rate of interest may have a much more restrictive surrender provision – either higher surrender penalties or a longer surrender period, or both. And, when comparing high interest rate annuities, be sure to compare annuity expenses, as annuity providers may sometimes try to offset the cost of a high rate of interest with higher expenses.

Quality is as Important as Quantity

Comparing interest rates and rate guarantees, while important, should be done only after you have narrowed your selection of annuity providers based on their financial strength and quality. By focusing only the highest rated annuity providers, you will quickly narrow your choices from hundreds down to a few dozen. The availability of rate comparisons online has made the entire field of annuity providers extremely competitive, so you are likely to find the best annuity rates even among the more highly rated companies.

The importance of choosing quality in an annuity cannot be understated as all of the guarantees of an annuity are only as sound as the financial strength and integrity of the company that backs them. Although annuities are considered to be among the safest of all savings vehicles, there is little reason to chase after a high interest rate from a lower rated company when there are so many competitive rates being offered by the top companies. It is strongly recommended that you confine your search to those companies rated A+ or better by A.M. Best or AAA by Standard & Poor’s.

Summary

Armed with the knowledge of which annuity fits your needs, and how to dissect the interest rates and rate guarantees, it is just a matter of logging on, and narrowing your choices. By no means should you expect the task of finding the best annuity rates online to be without challenges. The annuity rate search sites do a great job of facilitating your search, and providing you with essential information for comparison purposes. At some point, it is advisable to seek the guidance of a trusted financial professional who can answer all of your questions and ensure that your ultimate choice best suits your needs.