Ok, so let’s assume you’ve already done some research and understand what an annuity is. Now it’s time to start thinking about how to buy and annuity, and what options you have. First, if you haven’t spoken to a knowledgeable expert about your options, that’s something you need to do. No matter how much research you’ve done, you need someone who understands the complexities of these products to help you through the buying process.
Although annuities are insurance products, you can go through different types of companies to purchase one. No matter what company you make the purchase through, an insurance company will ultimately issue the annuity. For that reason it is imperative you know the financial strength of the insurance company. If the insurer has problems in the future, that could put your annuity payments at risk.
An annuity is an insurance product that you purchase to provide a future income stream. Typically you make a lump sum payment and start receiving income either immediately, or at some time further in the future. There are four types of annuity.
|Immediate||Begins paying the buyer immediately.||Often purchased later in life than deferred annuities to provide a monthly income stream similar to a pension.|
|Deferred||Begins paying out at some future date.||Most often purchased earlier in life with payouts beginning closer to retirement years.|
|Variable||The value is determined by a set of investments that fluctuates.||Required a higher risk tolerance, and one should watch associated costs and fees that can be associated with these annuities which erodes value.|
|Fixed||Guarantee a rate of return and payout.||These are good for risk adverse investors looking to supplement retirement income.|
Companies That Sell Annuities
Many people don’t view and annuity as an insurance product, but that’s exactly what it is. Because of this fact, an insurance agency is a good place to start looking at annuity options. Some people might feel this is more a financial decision, and for that reason, many insurance agencies also have finance experts on staff to help with those questions. With those two competencies, many insurance agencies are equipped to help you decide if an annuity is right for you.
Captive Agent – This type of insurance agent works specifically for an insurance company. They may be a full time employee, or work through an agency who sells products just for this company. Often these are larger insurance companies with a long history and stable financials. The trade off for this stability may be a smaller selection of products.
Independent Agent – These agents operate independently from one specific insurance company. Therefore they can offer a wider selection of products. The trade-off here is they may not know all of the products offered within one insurance company as well as a captive agent might.
Finance companies like a Fidelity or UBS are also a good starting point for annuities. The benefit of using a financial firm, especially if they already manage money for you, is their ability to look at an annuity product, and how it will fit into an overall financial plan. While the other companies types discussed here should be doing the same thing, a brokerage firm might have a head start.
An independent broker-dealer caters to individuals with a Series 6 or 7 license, but want more freedom in conducting business. Other full-service dealers maintain more control over their reps. Some of the larger independent broker-dealers include LPL Financial, and Raymond James.
The benefit of using a rep from one of these companies is they typically have access to more products than reps working for a full-service company. The other side of that argument, is that you need to ensure this rep is very experienced as they may not have many support members around them to advise on products being offered.
It’s not as common, but your standard old bank can also sell you an annuity. If you have a banker you’ve been using for years, and trust their advise, it’s not a bad place to start.
Mutual Fund Companies
Again, not as common because many times people don’t have a direct relationship with the mutual fund companies they purchase. That said, sometimes a mutual fund company and brokerage are one in the same. If the brokerage you deal with also has mutual funds, you may end up purchasing directly from the mutual fund company.
Can You Buy An Annuity Online
The answer to this question is yes, but that should be quickly followed by the fact that you should not buy this product online. There are undoubtedly times in life when you can skip the middleman and go it alone, but this is not one of them. It’s imperative you take the time study these products yourself, but also to get the advice of a seasoned professional.
This is not to say you should be scared of these products, as they can be great for the right investor who is fully informed. However, the chances aren’t great of you finding the exact product that matches your needs without some assistance.
The Bottom Line
There are many ways to purchase an annuity. Chances are you already have a relationship with a company that sells, and can at least offer you some advice (even if it’s just your bank). Do your research and find an agent that you trust to help you through this decision.
After you’ve identified the right advisor, make sure you fully understand the product you’ve decided to purchase. There are positives, especially to conservative investors looking for an income stream when they are older, but you need to be well versed on the costs and realities involved with purchasing an annuity.