Perhaps the most intimidating quality of fixed annuity is its long term features.
Many investors don’t like the idea of making a long term investment, in fear that if things start to go bad they would like the freedom to retreat and begin with a different investment. In recognition of this fear there is an annuity feature that allows investors to back out of an annuity without penalty if things aren’t going as well as they had hoped. This feature has appropriately been titled a bailout feature.
How This Works:
Some deferred annuities have renewal rates. This means that the interest rates may change throughout the investment. These changes are made based on how other investment rates are doing, like corporate bond rates or government securities rates. The reason for this is insurance companies use safe investments such as these to support their ability to payout interest.
This is where the bailout feature comes into play. A bailout feature sets a certain percentage which your investment’s interest should not go below. If the renewal rate does in fact go lower than the set bailout rate, then the investor is eligible to withdrawal the entire investment without facing any surrender charge.
Annuities have become a very popular investment vehicle in recent years, in large part because the financial market as a whole has been unreliable and in some cases devastating to investors. Retirees are especially interested in annuities because they are not in a position to take much risk with their life savings. Because of this growing demand for annuities, the insurance companies have been developing add-on features to their annuity products that make their annuities more appealing to others. In a competitive market, insurance companies are continuing to make annuities more attractive to the consumer.
As a result of this competitive market, features like the bailout feature are going to be a huge marketing tactic for annuity carriers. And as long as these carriers are competing and creating attractive features, the investors will be the ones winning.
Some other features that might interest you are:
- Free Withdrawal Feature
- Accelerated Payment Feature
- Money Back Guarantees
- Minimum Income Benefit Rider
So just be sure to do your research and know what is available when shopping for annuities. Don’t let anyone convince you one product is better than the other without first knowing what kind of additional features can be added to your available annuities to help optimize your investment.
Phil Cannella is an expert in financial planning and the CEO of Retirement Media Inc. He hosts The Crash Proof Retirement Show on CBS, where he covers essential points on investments, annuities and sound advice on retirement. See the Crash Proof Retirement Reviews page for more information.