Biggest Fears About Annuities

Will An Annuity Tie Up My Money?

Fixed and Fixed Index Annuity products are designed to pay the best benefits when your money is allowed to remain in the account for extended periods.  However, there are types of fixed annuities that allow full access to your initial premium without any cost, fee, or penalty.  In addition, there is never a period of time that you are not allowed to access the entire balance in your annuity.  Like other investments, you may be subject to early withdrawal fees and taxes, but you will always have access to your money.  Furthermore, many annuities allow you to avoid withdrawal penalties if the following situations occur:

  • Death of the annuitant
  • Certain cases of disability of the annuitant
  • Annuitization (withdrawing your initial deposit within one year of signing the annuity contract)

Declining Surrender Fees – In most Fixed Annuities you are subject to a surrender fee if you withdraw more than 10% of your annuity value.  The surrender period is usually around 10 years.  However, the surrender fee is reduced each year during the surrender period.  At the end of your surrender period, your withdrawal fee is zero and you will have unrestricted access (without fees or penalties) to your annuity balance. Click here to learn more about surrender fees.

If access to your annuity funds without fees is a top concern, be sure to ask your independent annuity advisor to show you the annuity products that allow full access to your initial premium without any cost, fee, or penalty.

Are Annuities FDIC Insured Like Bank Accounts?

Insurance companies are some of the strongest financial institutions in the world.  Insurance companies are the institutions that all other entities use to provide protection from loss.  Think about your own life.  You use insurance to cover your home, auto, personal property, health, and your life.  Why not use insurance companies to protect your money too?

You rarely hear about insurance companies failing.  However, that cannot be said about banks, brokerage firms, and other financial institutions.  In the very rare instance of an insurance company failing, annuity owners are shielded with many layers of protection.  That is why you have never heard of anyone ever losing their money in a Fixed or Fixed Indexed Annuity.  Although annuities are not FDIC insured like banks, annuities have a final layer of protection provided by state run Insurance Guarantee Funds.  These funds are the insurance companies equivalent to the banks FDIC and operate much like the FDIC.

Is Investing In Annuities Safe?

The basic advantage of Fixed and Fixed Index Annuities is that they offer an insurance company guarantee that make them safe.  The insurance company provides you with a written contract called a “policy”.  The policy specifically spells out the details of your annuity.  Consequently, the insurance company is contractually bound to provide the benefits that are promised in the policy.

Money placed in an annuity should be considered more like a saving account and NOT a risk for return based investment.  In a Fixed or Fixed Index Annuity there is never any risk to your principle, nor any risk to your interest after it is deposited into your account.  There has never been a single documented incident of anyone ever losing their money in a Fixed or Fixed Index Annuity.  To learn more about the guarantees of a fixed annuity, click here.

Will My Annuity Transfer To My Heirs?

Upon death of the annuity owner, the full account value is transferred to the owner’s heirs without any fees or cost.  With most Annuities, the heirs have the option of receiving a lump sum payment or they can spread out the inheritance over a 5 year or longer period.

Are Annuities Difficult To Understand?

Fixed Index Annuities can seem confusing to some, but once you have been explained the three key components of these products, they are clear and straight forward.  The most important details to understand are:

  • Surrender fees and period
  • Guaranteed interest rates
  • How interest is applied

It is important to work with an advisor who is going to patiently explain how the benefits work so that you’re comfortable with the concept.  For annuity buyers who want to approach their first annuity with more caution, you have the option of starting out with a small sum of money, and then after gaining a level of confidence in a year or two, increasing the amount of money deposited in the annuity.

How Am I Protected Against Unethical Sales Agents?

Insurance companies have put in place consumer protection policies that help shield you against unscrupulous salespeople.  They are called “suitability studies”, and suitability is a big deal with all insurance companies.  Each new annuity submitted to the insurance company must face a series of rigorous financial “tests” to ensure that the annuity advisor does not sell a product that is unsuitable to your financial situation.  The annuity advisor can be suspended or suffer the loss of their license if they submit inappropriate business.

If an application is submitted to an insurance company, and the customer’s financial condition does not warrant the approval of an annuity, the application will be rejected or possibly accepted with a lesser financial commitment.

Finally, the insurance company must spell out all of their guarantees, in great detail, in the annuity policy.  When you receive your policy, your advisor will review these details.  As the owner of the policy, you have a 30 day free-look period to review the policy.  In the unlikely event you see something you do not like, you will have a right to cancel your policy and the money is returned either to you or returned to the source from which it originated.

Why Won’t My Financial Advisor Suggest Annuities?

A special state issued license is required to sell annuity products to consumers.  Many financial advisors or banking employees are not licensed to sell these products, nor do they have the training and expertise to explain the pros and cons of annuity products.  Furthermore, some financial advisors earn their living by placing clients money in stock market based products, not annuities.  In some cases, asking your financial advisor about annuity products would be like asking a Ford dealer if you should buy a Toyota!  Before getting advice about annuity products, it is important to determine if your financial advisor or banker is properly licensed to discuss annuity products with you.  If they are not, it is important to seek out a qualified annuity expert to explore your annuity product options.

AnnuitySeeker can help connect you to a licensed annuity advisor in your area.

Today’s modern annuities have come a long way since their roots some 350 years ago.  Many of the fears consumers once had about annuities have been addressed by the insurance companies who have updated their offerings to provide a variety of options to fit a number of today’s unique retirement needs.  We invite you to review the information here on and learn more about how an annuity can help you achieve your financial goals.


More About Annuities:   What Is An Annuity | Fixed Annuity Guide | Pros and Cons of An Annuity | 10 Reasons Why Annuities Are Popular | Fixed & Variable Annuities Explained | How Annuities Compare To Other Financial Products


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