The Best Fixed Annuity Coverage
No Withdrawal Penalities
- To find the most flexible contract you must consider a number of factors. You can assess withdrawal or surrender charges by looking at the withdrawal schedule and the penalties associated with withdrawal. Look for a contract with a penalty free withdrawal allowance. Also inquire about disability or terminal illness provisions in the contract and the length of the guarantee period. These should all be clearly defined in the contract.
- Understanding the terms of the contract is important; however, terms are little consideration if the insurer does not honor the contract or goes under due to bankruptcy or dissolution. While most insurance companies hold diversified portfolios which mitigate risk, sometimes insurers are overexposed in one particular area of the market. Look for minimum state guarantees to guard against this scenario. Also, stick with A rated, brand name insurers. Siding with a lower rated or more riskier insurer may get you a higher rate, but the rate may not compensate you for the extra risk you're taking on.
Highest Rate and Flexibility: You Can Have Both
- Understand that a higher rate will usually be accompanied by a stricter withdrawal schedule, a longer term, a higher premium, and a shortened guarantee period. Your best bet is to find a balance between all of these features. Shopping at the right time can greatly improve your coverage. Like CDs (certificates of deposit), you are locking in a fixed rate over a given time period. Therefore, the best time to lock in your fixed annuity coverage is when rates are high and expected to fall. Finding longer term contracts might be more difficult at the height of the interest rate cycle. In lower rate environments, look for incentives in the form of cash or flexibility in order to make up for this loss.