Don’t let annuity jargon bait you into a policy you don’t want
Every industry has its own language, and the world of annuities is no different.
However, the word games used in the annuity sales process sometimes turns into a semantic nightmare where you think you own something that you really don’t. Make sure that doesn’t happen to you. Know the real definitions of the sometimes confusing annuity language.
An income rider is an attached benefit to a deferred annuity that guarantees income at a future date. It is not yield. An income rider is typically a separate calculation from the accumulation value and cannot be transferred, or cashed in lump sum. You also cannot peel off the high income rider interest, and can only use it for income. It’s monopoly money otherwise.
There is no free money, and no annuity company is giving away anything. Buying an annuity for the bonus is like buying a car for the stereo system. This is agent candy for the uninformed annuity buying masses. Upfront bonuses are just part of the overall contractual guaranteed calculations, and isn’t too good to be true.
This is a separate calculation on some deferred annuity policies that insures you will at least get back more money than you put in if you hold the contract through the surrender period. With most policies, it doesn’t mean that you get this guaranteed percentage plus potential growth on top of that floor.
It always baffles me when agents (and carriers for that matter) tout the free withdrawal provision as a great thing. Yes, this is the liquidity feature on most deferred annuities, and is typically 10% of the accumulation value annually. Just remember, you are getting your own money back, and any money taken out affects any guarantees within the policy.
This is a word used by annuity salespeople to try to sell indexed annuities. This is catnip to the less informed annuity buyer because the word “hybrid” is a fill in the blank definition, and sounds like you are getting more for your money. All you are getting is sold, and at the end of the dream sales pitch you will just have an indexed annuity with an income rider. Sorry to burst your hybrid bubble.
Let’s get right to the point. State guaranty funds that back up annuity policies are not like FDIC coverage at the bank. Don’t allow an agent to sell you a low-rated carrier because of this supposed state coverage. Most agents are unaware that it’s illegal in most states to mention it in the sales process.
In the movie “Back To The Future,” the DeLorean time machine car was powered by a made up gizmo called a “flux capacitor.” You fed garbage into it, and that magically fueled the car. Sometimes I think I’m in another Michael J. Fox movie when I see annuity ads on TV or the Internet spewing too good to be true garbage to the annuity buying masses.
Would you buy a car from a salesperson that over hyped a supposed “flux capacitor” you have never heard of? Of course not. Then why would you buy an annuity because the agent said it was a “hybrid?” Be smart out there, and be careful when playing annuity word games.
Originally published 12.2.14 by MarketWatch.com – http://www.marketwatch.com/story/dont-let-annuity-jargon-bait-you-into-a-policy-you-dont-want-2014-12-02