The annuity covered here is the one bought by the ordinary person, which is the standard annuity. Although there are several types of annuities, we won’t be covering the detailed information on those at this time. Not realized by most people in this group is the fact that they are, in actuality, buying an annuity when the mature date of the policy for this coverage comes about.
When this happens, the customer will get a visit from a representative of the insurance company telling them the good news about the money they’ve made. Very often they will present it in such a way as to inform the client how much money they can receive monthly for the rest of their lives or the representative will attempt to get the client to buy another type of policy. In an effort to get the client’s signature without having to discuss what is actually taking place, the representative will simply promise that the client’s first check will be sent in a certain period of time. Who wouldn’t be excited about getting money every month?
In this scenario, what actually took place is that the policyholder bought another annuity from the same insurance company with the money he earned from his matured policy, also referred to as a retirement annuity. When considering the amount of interest that may be earned if the same amount of money that was spent on the policy could be deposited to a savings bank or credit union, you would most likely find it would be much more. It is important for you to note that I said, “If the money could be invested,” because insurance companies are the entities to which the law usually states this type of investment has to be made.
This doesn’t have to be with the same company where the retirement annuity matured. It can be any insurance company.
Something the representative for the insurance company rarely tells clients because, under normal circumstances it’s not required, is that everyone is free to do some research and choose whichever company will offer the highest annuity (return) according to the investment that can be made.
Checking out annuities could turn out to take a lot of effort because it can be quite difficult to discern all the information available, which may be presented in several different methods.
There are ways that an insurance company will attempt to explain away the low return on annuities. One common response from an insurance representative when asked about the poor return is that their company must keep up the annuity for the remainder of the policyholder’s life no matter what the circumstances may be; and they will present the possibility of the client living to a very old age. On the other hand, these same representatives will push the long-run affordability (after taxes are deducted) to the client because they are also selling retirement annuities.
Even if you find the aspect of checking out annuities very dull, it is important to make yourself do it. Your efforts may keep you from being a victim and going through a lot of disappointment by getting “stung” at a very crucial point in your life when you want things moving along smoothly.
