Confused About Annuities? You’re Not Alone
I found this at The Tallahassee Democrat:
In what I would think would be an obvious sales practice, a major insurance industry group has agreed to support regulation by the National Association of Insurance Commissioners (NAIC) to make sure annuities sold to all consumers are appropriate for their financial objectives.
Inappropriate annuity sales to senior citizens prompted the NAIC to recommend that states adopt regulations specific to that group of consumers in order to curtail deceptive sales practices. The Senior Protection in Annuity Transactions model regulation requires that annuity-purchase recommendations to consumers aged 65 and older be based on information about their financial situation, such as their investment objectives or tax status.
The regulation came about because many seniors didn’t understand or weren’t adequately informed of the details in their annuity contracts.
But it’s not just senior citizens who are confused about annuities. NAIC decided it wanted the model regulation for seniors extended to cover annuity sales to all consumers. The industry initially balked at the expansion.
But recently the ACLI issued a statement that it would urge the states in 2006 to extend to all consumers the protections contained in the model regulation.
Here are just a few of the questions the NAIC says people should ask before buying an annuity:
Is my annuity fixed or variable? A fixed annuity earns a guaranteed rate of interest on the money you give the insurance company for a specific time period. Once the guarantee period is over, a new interest rate is set for the next period. Variable annuities typically offer a range of investment options. The return on a variable annuity varies depending on the underlying investment.
If buying a fixed annuity, what is the initial interest rate paid and how long is it guaranteed?
What are the fees and charges? Specifically ask what are the surrender charges or penalties if you want to end your annuity contract early and take out all of your money.
Does this annuity waive withdrawal charges if I am confined to a nursing home or diagnosed with a terminal illness?
What annuity income payment options do I have?
Is this annuity appropriate if I haven’t taken advantage of other tax-deferred retirement accounts such as a 401(k)?
Hopefully the NAIC reforms will help prevent many inappropriate annuity sales.