Should I Buy an Annuity?

Annuities are an investment option that is usually brokered by insurance agencies.  An annuity lets you make either a lump sum or recurring payments to the insurance company, who will then invest the money for you and credit your account with cash on a specified basis.  Annuities can be a good investment if you choose the right one; they can help build wealth and can act as a backup source of income if needed.

The single largest question that needs to be answered when buying an annuity is if the benefits outweigh the cost of the annuity.  Only the investor is able to make this determination, since the benefits apply to him or her, and the money comes out of their pocket. Many experts feel that purchasing annuities is not a wise decision for individuals to make.  The annuity usually benefits the company offering it more than it benefits the purchaser.  That said, other experts disagree and point out that even if the guarantees are not met, a substantial profit is still earned on the money that otherwise might be sitting in an account and not earning anything.

While annuities are usually tax deferred, that doesn't mean they are tax free.  They are taxable and both you and your beneficiaries will have to pay Uncle Sam his due.  You can stave this off for a time, but like all things, taxes will have to be paid on it eventually.

Annuities are far more valuable to insurance companies than they are to investors.  That doesn’t mean that they don't make any money, it simply means that the insurance company sees more out of the investment than you do.  You will still earn your set amount and it will be paid to you for the life of the annuity, or until your death.

If you are considering purchasing an annuity, speak to your insurance agent and ask them to completely explain all the terms and conditions that apply to the contract.  Never sign a document that you do not fully understand; you can find yourself in a difficult situation. Your insurance agent should be able to explain everything that applies to the annuity to your satisfaction.  If you still want to buy the annuity after they are done, chose an insurance agency that you trust and that is working with your best interests at heart.

Carol DiMarco, from Boston, Massachusetts, shopped around for her annuity.  She chose a fixed rate annuity from a local insurance agent in her hometown of Boston.  Her agent was able to completely explain all the different terms of the annuity and Carol was more than happy to do business with that agent.

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