I’ve learned the word “annuity” is a curse word in the financial industry. Perhaps some bad sales practices have helped with this bad reputation, or maybe it’s the constant “I Hate Annuities” ads that blanket all platforms. Many people that might need an annuity transfer of risk strategy have, unfortunately, opted not to learn more because of this unearned negative stigma.
Annuities are contracts that are issued by a life insurance company and have 2 unique benefits that separate them from all other financial products. These proprietary items do not mean everyone needs to own an annuity, but it should make you think twice the next time you hear a financial pundit or advisor say to never buy an annuity.
The guarantee of lifetime income is the monopoly that only annuities have. No other financial product on the planet can contractually guarantee a stream of income that you can never outlive. The only 2 strategies that also provide a lifetime income are your Social Security payments and (if you are so fortunate) a pension. Believe it or not but, those are both annuity type structures as well.
Annuities were first introduced in the Roman Times as a lifetime pension type payment to the dutiful Roman soldiers and their families. The Latin word annua means payment and is the origin of today’s word annuity. That first Roman income annuity is today’s Single Premium Immediate Annuity (SPIA).
The 4 primary types of annuities that provide contractual lifetime income streams are Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders attached to some deferred annuities. Your life expectancy at the time you start the payments is what all income guarantee pricing is primarily based on, with interest rates playing a secondary pricing role.
There is no ROI (Return on Investment) calculation until you die. Up until that point, it’s a pure transfer of risk strategy. Policies can be structured to cover one life (“Single Life”) or two lives (“Joint Life”), and annuity carriers actively bid for your business. Income annuities are commodity products that need to be shopped with all carriers to find the highest contractual guarantee for your specific situation. Shopping for annuities is like shopping for a plane ticket. You are looking for the best deal and the best price. And for annuities, lifetime income is the first unique benefit that only annuities offer.
When most people buy a car, they go to the lot and test drive it before signing the paperwork. The same can be said for buying a house. You want to know what you are getting before committing.
Annuities are the only financial product that allows you to own the policy and be able to get your money back without question. In other words, you can test drive the annuity. It’s called the annuity “free look” period. Here’s how it works.
Regardless of the annuity type you purchase; a policy will be delivered after the contract is issued. Once you receive that contract, you have a specific period to review the policy and get your money back in full. Each state has a different free look policy, so be sure to do your homework for your specific situations and limitations.
During the free look period, the policy is in force. You can then call the carrier directly to ask any questions or verify any sales pitch promises to see if they are true. If you find out that you had been misled during the sales process or things have changed since you made the buying decision you can get your money back. No questions asked. However, you must sign a specific form and fax or scan it back to the issuing carrier within that free look time period to get a full refund. You don’t have to interact with the selling agent at all. Just deal with the annuity company.
This is one of the best things the annuity industry has ever done, in my opinion. Allowing the consumer to “test drive” the annuity after it has been issued would make Ralph Nader weep with joy. It’s so pro-consumer, makes you wonder why the annuity industry hasn’t etched this unique benefit into the heads of every Baby Boomer in America.
Annuities, regardless of type, are commodity products that should be shopped for with all carriers to find the highest contractual guarantee. Now that you know you can “test drive” the policy, you can shop with confidence knowing that, if needed, you can get your money back in full during the “free look” period.
If you need income for the rest of your life and are growing a little weary of the stock market beating up your retirement accounts, it might be time to add annuity lifetime income guarantees to your Social Security payments.