Annuities can be a controversial investment, even the best annuities. Not because they are a high risk or because so many people have been scammed, but because you face high losses if you have to withdraw your money early and the fact that the FDIC doesn’t protect your annuities if the company you purchase your annuity from fails.
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With that being said, any insurance company that sells annuities or life insurance policies are required to join the NOLHGA (National Organization of Life and Health Insurance Guaranty Association) before they can sell these things. The NOLHGA is an organization that provides a portion of the benefits to the annuity holders of these insurance companies.
This amount maxes out at $100,000 and isn’t based on your total benefit amount but on the amount of premiums that you have invested into your annuity. There is no guarantee on how much you will receive because that will depend on the amount of people who purchased annuities and life insurance policies from the company, how much NOLHGA can collect from other insurance companies and whether NOLHGA can “sell” your annuity to another insurance company.
Best Annuities: When an Insurance Company Fails
Basically, if you are just starting a deferred annuity with flexible premium payments and your insurance company fails, then NOLHGA will probably be able to get another insurance company to honor your annuity. If this happens, then that insurance company will become your insurer and you will pay your premiums to them.
Every insurance company in your state that sells annuities becomes financially responsible for the annuity benefits of the failed company. Basically, NOLHGA will assess each companies finances and premiums collected and require them to pay a fee, of sorts, to help cover the cost of the annuities and life insurance policies of the customers who have lost their money. If an insurance company can’t afford to pay, they will not have to.
Because of this, many experts recommend that you never put more than $100K into an annuity and that you only purchase one per company. The downside to doing this is that if you choose a deferred annuity and one company is doing a better job with your investments than another one is, you won’t get the maximum value for your investment.
So how do you avoid this trouble? Well, you need to make sure that you purchase the best annuities possible. While you might be thinking that this will be the company that pays the most, the truth is, you need to look at financial stability first!
Choosing the Company with the Best Annuities
When choosing the company with the best annuities, the first thing you need to do is check their financial rating. Most insurance companies post their ratings on their website, however, most don’t post their ratings from more than one company and they choose the rating that puts them in the best light.
Fortunately, you can check their ratings for yourself by visiting A.M. Best, Standard and Poor’s and Moody’s. If the insurance company that you are considering isn’t ranked on at least two of these sites, then you will want to consider removing them from your consideration, as they haven’t yet had enough scrutiny.
You should never make a long term investment with a company that has less than an A rating with a positive outlook from each of these rating companies. You will also want to look at each company’s ratings for previous years to insure that they aren’t consistently falling each year. If the company started at A++, for example, moved to A+ a couple of years later and then a couple of years down the line became an A rated company, you might want to reconsider this purchase.
A company with these types of ratings, although still highly rated, is showing a downward trend. You need to consider whether they will have the best annuities in 15 years based on that trend.
Ensure that you have several choices when it comes to deciding which of the best insurance companies have the best annuities. That is because you will need to compare the benefits from each company based on the same investment scenario. There are many great calculators online to help you determine just how much you want to invest and that helps you create different scenarios, but they can’t help you find the best annuities when all is said and done.
If you have $100,000 to invest, for example, then you need to get a quote from each company based on that investment amount. You might be surprised to learn that there could be a benefit difference of a couple of hundred dollars a month depending on the insurance company you choose. This difference is based on the guaranteed interest rate on your investment as well as the annuity fees each insurance company charges for their service.
You also need to compare the difference in your benefit based on your age. This only applies if you are investing in an immediate annuity, however, the benefit amount should be different for a 40 year old person versus a 60 year old person. Some companies only vary by a few hundred dollars in terms of your premium payment, which is just wrong. You should pay far less for the same benefit at 60 than you would at 40.
The reason for this is that at 60 your life expectancy is lower than it is at 40. The older you are, the less money it should take to get your benefit because the insurance company expects you to die before you receive your full annuity benefit. This may sound a little sinister, but this is simply how immediate annuities work.
Immediate or Deferred: The Best Annuities for You
Now that you understand that the best annuities must come from a solid source, you need to decide whether immediate or deferred annuities are best for you. They both have their benefits and both can offer a lifetime guaranteed payment. However, an immediate annuity begins paying immediately after you make your investment and a deferred annuity begins to pay out after a specified amount of time, which can vary from 5 years to 25 years, depending on your age when you begin investing.
- An immediate annuity is an annuity with a large one time premium that begins to pay out the month after you make your investment. The are the best annuities for people over the age of 60 looking for a way to ensure that they money lasts as long as they do. You can, however, invest in an immediate annuity at any age. Perhaps you know you are prone to spend the money you have and you receive a windfall, this is an excellent way to ensure you have a guaranteed income for the rest of your life.
- A deferred annuity is recommend for those that have at least 20 years to invest. You have to make a minimum premium payment into your account every month, (although there are single premium deferred annuities as well), but you can increase that amount at any time to grow your investment. Once you reach your contract agreement, you receive your benefit, either in monthly installments or as a one time benefit payment.
The Cost of the Best Annuities
In order to get the best annuities, you need to compare their costs. Fortunately, you can do that right now using our free quote tool. You can compare immediate versus deferred annuities as well as change your investment amounts to determine just how much you need to invest to make your investment worthwhile.
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