Index Annuity: How to Grill Your Agent before Purchase

Index annuities are a popular form of investment for those saving for retirement. Since this is a product offered by insurance providers, you will need to deal with an insurance agent before making a purchase. Here are the basics of how to properly question your agent before making a purchase.

The Term

Before agreeing to purchase an index annuity, you need to make sure that you ask your agent about the term of the contract. Some annuities have a predetermined amount of time that they will pay you benefits. Other annuities will actually pay you for the remainder of your life. This means that it is important for you to understand exactly how long your contract will last before signing up.

Guaranteed Minimum

With most indexed annuities, you will be able to obtain a guaranteed minimum on your investment. Even though the annuity is tied to a financial index, it will provide you with a minimum rate of return regardless of what happens to the index. This provides you with a level of safety with your retirement money. Before getting involved, you need to ask your agent exactly what the minimum guaranteed rate is on the annuity.


In addition to having a minimum rate of return, many annuities will have a cap on what you can earn. For example, if the index appreciates by 12 percent in a year, you might be able to earn a maximum of only 8 percent. You need to determine whether your annuity has a provision like this and make sure that it is acceptable to your investment goals. You do not want the cap to be too small.


You also need to ask your insurance agent what charges are involved with this type of annuity. Ask if they will be deducting anything from the premiums that you pay or the value of the contract. Most annuities will have some type of annual fee that they charge for management. Make sure that the fee is acceptable for your unique investment situation.


You also need to find out what method of indexing is used for your particular annuity. You need to find out exactly which financial index is used to determine your rate of return. For example, an annuity might track the S&P 500 on an annual basis. This means that if the S&P 500 is doing well, your retirement annuity will also do well.

Death Benefit

You should also ask the insurance agent about the annuity's death benefit. Every annuity will have a slightly different death benefit. Some annuities will pay a lump sum to a beneficiary. Other annuities will provide your beneficiary with a regular payment for a certain number of years. They all work a little bit differently, so you need to make sure that you understand all the details. You want to make sure that your loved ones will be taken care of in the event that you pass away before them.

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