Some annuities make sense for financial planning

Annuities have gotten a bad name because of the high-pressure, “free-lunch” sales tactics many agents use to sell fixed indexed annuities linked to stock market gains. (Check my recent column on the subject.) But annuities do have some important uses in financial planning. Here are some basics.

Every annuity is a contract with an insurance company. These contracts are backed by the company itself and by state “guarantee funds” but not by the federal government. Those state guarantee funds are made up of contributions by other insurers doing business in the state.

It’s important to deal with a highly rated insurance company. Check A.M. Best insurance company ratings at http://consumers.ambest.com/ConsumerSearch.aspx.

Insurance products can offer some enticing yields because of the provision in federal tax law that says money growing inside an insurance contract can compound tax free. But don’t let yield blind you to facts.

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