What is a Fixed Annuity?

Definition of Fixed Annuity

A Fixed Rate Annuity gives you the stability and consistency of a fixed interest rate that is determined by the insurance company and is guaranteed never to renew below a stated minimum rate. Interest credits are usually applied daily to the Annuity Value. This type of annuity provides a predictable return and a guaranteed stream of fixed payments over the life of the Annuity. Depending on the provision of the particular Annuity, Annuity owners can make one contribution or many contributions.

• Guaranteed Rate — A fixed interest rate is locked in for a period of your choosing, like a Certificate of Deposit or CD
• Retirement Income — Ideal source of secure monthly retirement checks. Retire with peace of mind and steady growth
• Solid Return — Competitive interest rates are usually higher than those of CDs or money market accounts
• Inheritance Options — Bequeath money directly to loved ones probate-free
• Liquidity — 10% free withdrawals, withdrawals of interest or "Annuitization" options give you access to your money when you need it

During the accumulation period of a Fixed Deferred Annuity, your money earns interest at rates set by the insurance company or in a way spelled out in the Annuity contract. The company guarantees that your annuity contract will never earn less than a stated minimum rate of interest. When you are ready to start the payment period, you will receive a fixed amount of income each month or year that will always stay the same amount. While Fixed Immediate Annuities may be available, this guide describes Fixed Deferred Annuities.

How Are Interest Rates Set?

During the accumulation period, your money earns interest. Fixed annuities rates have different rates and are dependent on several factors. The insurance company sets the interest rates, which can change.

Minimum Guaranteed Rate

Look for the minimum guaranteed interest rate. This is the absolute lowest rate your Annuity can earn. This rate is stated in the contract.

Current Interest Rate

Interest on your Annuity is credited based on the current interest rate. If at any time your annuity's minimum guaranteed interest rate is higher than the current interest rate, they will always credit your annuity with the guaranteed rate.

• The current interest rate when you first buy your Annuity is called the initial interest rate. Ask how long the company promises to pay this initial interest rate; in many Annuities, the initial interest rate only applies to the first year you own the Annuity. When the rate changes, it may be lower.
• Once the initial interest rate period ends, the company credits interest to your Annuity based on the renewal interest rate. The disclosure tells how the company will set the renewal rate and how often it can change. The renewal interest rate may be lower than the initial interest rate.

Bonus Interest Rate

As an incentive to buy and keep an Annuity, some companies offer a bonus interest rate. A bonus interest rate is higher than the current interest rate, but you must qualify and meet certain conditions in order for the insurance company to apply the bonus interest rate. For example, if you take a lump sum at maturity or take an early withdrawal, you may lose the bonus interest rate.

Multiple Interest Rates

Multiple interest rates apply to Flexible Premium Annuities. These contracts may apply different interest rates to each premium you pay.

Are There any Fees Associated with My Annuity?

Annuities have fees associated to the cost of selling and management. Fees are covered by deducting them directly from the contract value, or they may be reflected in lower interest rates.

It is important to read the disclosure form and ask your financial agent or the annuity company to help you identify any costs that may apply to your Annuity. Some examples of charges, fees and taxes are:

• A contract fee is a flat dollar amount charged either once or annually
• A transaction fee is a charge for each premium payment or other transaction
• A percentage of premium charge is a charge deducted from each premium paid. The percentage may vary over time
• Some states charge a premium tax on Annuities. The insurance company pays this tax to the state. The company may subtract the amount of the tax when you pay your premium, when you withdraw your contract value, when you start to receive income payments or when it pays a death benefit to your beneficiary

Surrender Charges

You may take out all or part of the money in your Annuity at any time during the accumulation period but you'll likely pay a surrender charge. The contract and the disclosure tell you how much you can take out without paying a charge and if the charge no longer applies after you've had the Annuity a while.

How Do I Know If A Fixed Deferred Annuity Is Right For Me?

The questions listed below may help you decide what the best fixed annuity might be for your particular situation. You should consider what you want to accomplish and what your goals are for the annuity. You also need to think about how much risk you're willing to take.

These Are The Questions You Should Ask Yourself:

• How comfortable am I with risk?
• How long can I leave my money in the Annuity?
• Does the Annuity let me get money when I need it?
• How much retirement income will I need in addition to what I will get elsewhere?
• After I buy the Annuity, how much money do I need to have available to cover major expenses and emergencies? How much would I have for these expected expenses?
• Will I need income payments only for myself or for myself and someone else?
• How soon will I need income payments? How much retirement income will I need in addition to what I'll get elsewhere?
• If the Annuity only earns the minimum guaranteed interest rate, will that be enough income to meet my needs?
• Am I comfortable with the length of time that I'll pay surrender charges if I withdraw money from the Annuity?

These Are Questions You Should Ask Your Financial Company Or The Insurance Company

• Is this a single premium or flexible premium contract?
• What is the guaranteed minimum interest rate?
• What is the initial interest rate and how long is it guaranteed?
• Does the initial rate include a bonus rate and how much is the bonus?
• If there's a bonus, when is it credited and on what amount?
• Do I lose any bonus if I take a lump sum rather than annuitize my accumulation value? Are there other ways I could lose the bonus?
• What renewal rate is the company crediting on Annuity contracts sold last year?
• How much are the withdrawal charges, surrender charges and other penalties? How long do they apply?
• When is the earliest I can get money out of the Annuity and how much can I get?
• How much can I withdraw without paying surrender charges or losing interest?
• Is there a Market Value Adjustment (MVA) feature in my Annuity?
• What other charges may be deducted from my premium or contract value?
• If I take a lump sum and surrender the Annuity, will the accumulated value or the way interest is credited change before I do this?
• What happens to the money in my Annuity if I die?
• How long is the free look or right to return period?

Final Points To Consider

Before you decide to buy an Annuity, remember to review the contract terms and conditions, because these vary with each Annuity contract.

It is also important to consider your needs depending on your age, and what you want to accomplish, to make sure that the Annuity is right for your situation. Withdrawing money from your annuity means you may have to pay taxes and/or penalties. If you're replacing an Annuity, you may have to pay direct or indirect costs associated with the new annuity. You may also have to pay surrender charges on the old Annuity if applicable. If you're selling another asset, are there penalties associated with the sale? Will you have to pay taxes on the sale? Annuities are intended to be a long-term product. Generally, you should keep it long enough to avoid paying any penalties.

If you're buying an Annuity to fund an IRA or other tax-deferred retirement program, there may be some additional advantages using this approach. Remember to ask your financial advisor if there any.

Upon delivery of your Annuity contract, READ IT CAREFULLY!! Also, read the insurance company disclosure provided with your annuity. Ask your Financial Company for an explanation of anything you don't understand. You want to do this before any free look period ends.

Any bonuses that are included an annuity, may seem very attractive, however it is important to consider the costs and benefits associated with them. Bonuses can help boost your Annuity's value, but it's important to understand how they work. In general, Annuities with bonuses have higher surrender charges and the surrender charges apply longer than in Annuities without bonuses. In addition, all things being equal, an Annuity with a bonus may have less potential for gains than a non-bonus Annuity. Make sure you understand the terms and conditions of any bonuses you're considering.