Annuities Pros and Cons

November 30, 2011

If you’ve heard of annuities as an investment option but don’t understand what they’re all about, you’re in the right place.

Below you will find a concise description of what annuities are, their pros and cons, and whether or not you should consider annuities as a viable investment option.

For more information, please contact one of our local Cincinnati insurance agents. He or she can provide you with all the information you’ll need to make a knowledgeable decision.

What are annuities?

An annuity is a contract between you and your insurance company. Basically, you pay the insurance company an amount of money that they must pay back with interest over a specified period of time.

Your age, sex, duration of payments, and amount of payments are all determining factors in your initial or ongoing premium.

Annuity Pros

Lifetime Income
Annuities can provide you with a guaranteed income that, by contract, you cannot outlive, making it a viable option for a retirement investment opportunity.

Guaranteed Returns
Unlike the stock market, an annuity contract guarantees you a minimum rate of interest. You will always get more out of your annuity than you put in, even in poor economic times.

Tax-deferred Interest
The interest a tax-deferred annuity earns overtime is not taxed until it is withdrawn from the annuity.

Annuity Cons

Lower Returns
In return for the security of guaranteed returns, you forgo the opportunity to make bigger returns on investments that fluctuate in value, like stocks. A fixed annuity is safe and secure, meaning you won’t see as many gains and losses as with a riskier investment.

Surrender Charges
When you invest in an annuity, you will have to pay surrender charges if you close the annuity within a specified period of time. This period of time is called the surrender period, and it can vary widely. Some can last as long as eight years.

Are Annuities for You?

Whether or not you should invest in an annuity is dependent on your age, sex, and a number of other factors.

Before purchasing an annuity, consider speaking with a local Cincinnati insurance agent about your options. We’ll help you make the most informed choice possible for your personal financial goals.

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