Learn About Equity Index Annuities
December 31, 2009 by Annuity and Structured Settlement Tips
Filed under About Annuities
‘Save for a rainy day’ is a wise old saying and there are many ways you can prepare for the sunset of your life. Investing in an annuity is one way. An annuity is a long-term, interest-paying contract offered through an insurance company or financial institution. An equity indexed annuity is an annuity that earns interest that is linked to a stock or other equity index. Depending on how those stocks fare will determine what you gain. The equity index annuities, as in any kind of investments, have to be kept untouched for a long period. The typical time is a minimum of 7 years. This will ensure that you get the full benefit of having invested in an equity index annuity.
The equity index annuities are basically an option of investment that is offered by insurance companies. They actually provide you with the benefit of investing in the stock market without the associated risks of losing your money. So, in an equity index annuity, your principal is never lost and even in a worst case you may take some interest back home. The flip side of this however is that even if the stocks that the equity index annuity is invested in gives high returns, you will not receive the full returns but just a percentage. So you do not get the maximum returns for your equity index annuity but just a part.
This is however the compensation that the insurance companies who offer you the equity index annuities receive, for providing you with a safety net throughout the term of the annuity. The percentage of returns (i.e. the gain of the index) that your equity index annuity brings you is determined by the participation rate. This rate is pre-decided and varies and to know this you have to read the fine print prior to signing on the documents. The general participation rate offered for most equity index annuities is between 70 to 90 percent.
The equity index annuities are therefore seen as a conservative and prudent investment.
They became quite popular during the previous bullish run in the market and insurance companies saw them as an excellent means of combining the security of a guaranteed return with the boom of the stock market. All equity index annuities offer a minimum interest rate and its value also does not fall below the guaranteed minimum percentage of the premium paid i.e. 90 percent at least.
However to achieve maximum benefits, your equity index annuities should not be withdrawn before the term. If you do even a partial withdrawal it will definitely affect the interest you receive. Like all investments, this is best kept for a long term. This will also help your equity index annuities even out and recover if the index plunges. As we know the stock market is volatile and this needs to be kept in mind when investing. Also there are definite withdrawal penalties that you would have to pay as well.
How then do the insurance agencies benefit from offering equity index annuities? The insurance companies reinvest the premium amounts that you pay and this is usually invested into bonds. Since the participation rate is fixed, they have to pay only those set rates of interest to the investors of the equity index annuities and the insurance companies profit the balance.
Equity index annuities are generally affiliated to a particular stock market index such as the S&P 500 or the Dow Jones Industrial Average. However as the equity index annuities combine features of a typical insurance product with the traditional security they do completely fall into each of those specific categories.
As a typical insurance product you are guaranteed minimum return and in terms of securities your investment is linked to the equity market. However it all depends on the features that your equity index annuity provides and it may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.
So then how does one know which equity index annuity is best for oneself? The only way is to find out as much as you can about the equity index annuity before you decide.
Ask a lot of questions like which stock market index does the equity index annuity use? What participation rate is being offered to you? Are there any hidden charges in terms of any fees or deductions payable? You have to run through a number of equity index annuity offerings before making your decision.
So save for a rainy day and do it the equity index annuity way!
Thanks to Scott Walker for contributing this article to our Annuities blog:
The equity index annuities are basically an option of investment that is offered by insurance companies. They actually provide you with the benefit of investing in the stock market without the associated risks of losing your money. So, in an equity index annuity, your principal is never lost and even in a worst case you may take some interest back home. The flip side of this however is that even if the stocks that the equity index annuity is invested in gives high returns, you will not receive the full returns but just a percentage. So you do not get the maximum returns for your equity index annuity but just a part.
This is however the compensation that the insurance companies who offer you the equity index annuities receive, for providing you with a safety net throughout the term of the annuity. The percentage of returns (i.e. the gain of the index) that your equity index annuity brings you is determined by the participation rate. This rate is pre-decided and varies and to know this you have to read the fine print prior to signing on the documents. The general participation rate offered for most equity index annuities is between 70 to 90 percent.
The equity index annuities are therefore seen as a conservative and prudent investment.
They became quite popular during the previous bullish run in the market and insurance companies saw them as an excellent means of combining the security of a guaranteed return with the boom of the stock market. All equity index annuities offer a minimum interest rate and its value also does not fall below the guaranteed minimum percentage of the premium paid i.e. 90 percent at least.
However to achieve maximum benefits, your equity index annuities should not be withdrawn before the term. If you do even a partial withdrawal it will definitely affect the interest you receive. Like all investments, this is best kept for a long term. This will also help your equity index annuities even out and recover if the index plunges. As we know the stock market is volatile and this needs to be kept in mind when investing. Also there are definite withdrawal penalties that you would have to pay as well.
How then do the insurance agencies benefit from offering equity index annuities? The insurance companies reinvest the premium amounts that you pay and this is usually invested into bonds. Since the participation rate is fixed, they have to pay only those set rates of interest to the investors of the equity index annuities and the insurance companies profit the balance.
Equity index annuities are generally affiliated to a particular stock market index such as the S&P 500 or the Dow Jones Industrial Average. However as the equity index annuities combine features of a typical insurance product with the traditional security they do completely fall into each of those specific categories.
As a typical insurance product you are guaranteed minimum return and in terms of securities your investment is linked to the equity market. However it all depends on the features that your equity index annuity provides and it may or may not be a security. The typical equity-indexed annuity is not registered with the SEC.
So then how does one know which equity index annuity is best for oneself? The only way is to find out as much as you can about the equity index annuity before you decide.
Ask a lot of questions like which stock market index does the equity index annuity use? What participation rate is being offered to you? Are there any hidden charges in terms of any fees or deductions payable? You have to run through a number of equity index annuity offerings before making your decision.
So save for a rainy day and do it the equity index annuity way!
Thanks to Scott Walker for contributing this article to our Annuities blog:
Scott is a consultant at
“>http://www.vietnambiology.com/equity_index_annuities.html
.
How to Collect on Lost Life Insurance Policies
December 31, 2009 by Annuity and Structured Settlement Tips
Filed under About Annuities
A relative has just died. He had a life insurance policy with you listed as the beneficiary. There’s just one problem: the life insurance policy is missing. You have no idea which insurance company wrote it.
If you find the missing life insurance policy in the future, are you still eligible to receive the death benefit?
Hope they paid their insurance bills
If you’re a beneficiary and you find the lost life insurance policy shortly after the insured dies (within six months to a year, for example), claiming the death benefit should be trouble-free.
First, determine if the insured had term or permanent life insurance. If the insured held a term policy, you’ll receive the death benefit if he died before the end of the policy term. If he died after the policy expiration date, you would get nothing.
If the insured had a permanent life policy, you’ll receive the money if the death occurred while the policy was “in force,” meaning all premium payments were made up until the time of death. If the death was a while ago, you’ll receive the benefit with interest from the date of death.
If the life insurance policy lapsed — meaning the insured stopped making premium payments before he died — there’s a chance you might get nothing. When a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to one of two options:
“Extended term” — The insurance company uses the cash value of the policy to buy a term life insurance policy for the same death benefit using the cash value of the policy. The death benefit will continue for the longest period the cash value will purchase.
“Reduced paid up” — The insurance company will keep the policy in force permanently, but will reduce the death benefit.
Gerry Brogla, an actuary for State Farm, says in the majority of the cases at his company, the permanent policy continues as extended term if it lapses. At State Farm, extended term is the default option for most permanent policies.
If the policy lapses, and the extended-term period expires before the insured dies, the policy is worthless and the life insurance beneficiary will get nothing. If the insured dies before the extended-term period is up, the beneficiary will receive the death benefit. If the policy lapsed because the insured died (thus ending premium payments and causing the insurance to be placed in extended-term status), the beneficiary will still collect the full death benefit, regardless of when the extended term was up. The beneficiary always needs to supply the insurance company with a death certificate to verify the date of death.
There is no time limit during which a life insurance beneficiary must step forward to collect the money, according to Jack Dolan, spokesman for the American Council of Life Insurers. “If a person shows up 30 years after [the insured's] death, the company still makes good on it,” Dolan assures.
What happens if no one ever reports the death?
If the insured dies and the insurance company does not learn of the death, the policy lapses. Insurance companies will take steps to find out why a policyholder stopped making payments.
When an insurance company stops getting payments, it sends letters to the insured informing him the policy may lapse as a result of unpaid premiums. If the letters go unanswered, the company might initiate a search to find the insured. If that comes up empty, the company will then lapse the policy.
If a beneficiary to a policy never steps forward, it unfortunately means the insured paid money to a policy throughout his life and his beneficiaries never see a penny. This is why its a good idea to make sure beneficiaries are aware of any life insurance policies you have.
If you’re lucky, the state may have your money
In some cases when a beneficiary fails to claim a death benefit for several years, the money is transferred to the state where the insurance policy was purchased under the escheat laws.
If a company knows an insured died and it cannot find the beneficiary, it must turn the full death benefit over to the state comptroller’s department within three to five years of the insured’s death. The money is transferred to the state where the insured bought the policy. The money is considered “unclaimed property” and gets lumped in with dormant bank accounts and uncollected rent deposits. The comptroller’s department maintains a database that lists the names and addresses of lost life insurance beneficiaries.
Many states will try to contact life insurance beneficiaries in an effort to pay the death benefits. In Texas, for example, the names and addresses of the beneficiaries are published annually in each county in the state. In New York, the Web site of the New York State Comptroller’s Office of Unclaimed Funds has an online search to find any unclaimed death benefits owed to you. You can find out the procedures in your state by contacting the office of your state comptroller or treasurer.
Keep in mind your chances of finding the policy with the state are slim. The insurance company has no obligation to hand the money over to the state if it’s unaware the insured died. In most cases, it’s the beneficiary who contacts the insurance company.
Also, the insurer only transfers the money to the state three to five years after it cannot find the beneficiary but knows the insured died. If the state doesn’t have the death benefit, it’s likely the insurer is still looking for the beneficiary or doesn’t know the policyholder has died.
Unclaimed death benefits are rarely transferred to the state. Dave Potter, a spokesman for Hartford Life, says less than 1 percent of his company’s death benefits go unclaimed.
Del Chance, a life insurance claims manager at State Farm, says, “Turning over life policy benefits to an individual state after the death of an insured is extremely rare. State Farm utilizes their own search techniques as well as outside vendors to locate lost beneficiaries in the event of the death of one of our insureds. By and large these procedures have always located the beneficiary.
Tips for making sure your life insurance beneficiaries get your death benefit:
1. Give your beneficiaries your policy information. It can be a difficult and awkward conversation, but an important one.
2. Keep all your financial records (especially your life insurance policies) in one place. Don’t force your beneficiaries to search your house from top to bottom after you die.
Tips for looking for lost life insurance policies:
1. Go through canceled checks or contact your relative’s bank for copies of old checks. Look for checks made out to insurance companies.
2. Ask those who may have known about your relative’s finances. Speak with the relative’s lawyer, banker or accountant. Also contact the relative’s insurance agent.
3. Contact your relative’s past employers. They might know of possible group life insurance. The insured might have also purchased supplemental life insurance through work.
4. Check the mail for a year. Premium bills and policy-status notices are usually sent annually.
5. Look at income tax returns for the past two years. Check for interest income from policies or expenses paid to life insurance companies.
6. Contact the Medical Information Bureau. If your relative bought life insurance fairly recently, there might be a trail of the companies to which he applied. The Medical Information Bureau (MIB) maintains a database that might show if insurers requested your relative’s medical information within the past seven years. Record searches can be requested through the MIB’s Policy Locator Service and cost $75. The MIB says that nearly 30 percent of searches turn up leads.
Thanks to Insure.com for contributing this article to our Annuities blog:
If you find the missing life insurance policy in the future, are you still eligible to receive the death benefit?
Hope they paid their insurance bills
If you’re a beneficiary and you find the lost life insurance policy shortly after the insured dies (within six months to a year, for example), claiming the death benefit should be trouble-free.
First, determine if the insured had term or permanent life insurance. If the insured held a term policy, you’ll receive the death benefit if he died before the end of the policy term. If he died after the policy expiration date, you would get nothing.
If the insured had a permanent life policy, you’ll receive the money if the death occurred while the policy was “in force,” meaning all premium payments were made up until the time of death. If the death was a while ago, you’ll receive the benefit with interest from the date of death.
If the life insurance policy lapsed — meaning the insured stopped making premium payments before he died — there’s a chance you might get nothing. When a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to one of two options:
“Extended term” — The insurance company uses the cash value of the policy to buy a term life insurance policy for the same death benefit using the cash value of the policy. The death benefit will continue for the longest period the cash value will purchase.
“Reduced paid up” — The insurance company will keep the policy in force permanently, but will reduce the death benefit.
Gerry Brogla, an actuary for State Farm, says in the majority of the cases at his company, the permanent policy continues as extended term if it lapses. At State Farm, extended term is the default option for most permanent policies.
If the policy lapses, and the extended-term period expires before the insured dies, the policy is worthless and the life insurance beneficiary will get nothing. If the insured dies before the extended-term period is up, the beneficiary will receive the death benefit. If the policy lapsed because the insured died (thus ending premium payments and causing the insurance to be placed in extended-term status), the beneficiary will still collect the full death benefit, regardless of when the extended term was up. The beneficiary always needs to supply the insurance company with a death certificate to verify the date of death.
There is no time limit during which a life insurance beneficiary must step forward to collect the money, according to Jack Dolan, spokesman for the American Council of Life Insurers. “If a person shows up 30 years after [the insured's] death, the company still makes good on it,” Dolan assures.
What happens if no one ever reports the death?
If the insured dies and the insurance company does not learn of the death, the policy lapses. Insurance companies will take steps to find out why a policyholder stopped making payments.
When an insurance company stops getting payments, it sends letters to the insured informing him the policy may lapse as a result of unpaid premiums. If the letters go unanswered, the company might initiate a search to find the insured. If that comes up empty, the company will then lapse the policy.
If a beneficiary to a policy never steps forward, it unfortunately means the insured paid money to a policy throughout his life and his beneficiaries never see a penny. This is why its a good idea to make sure beneficiaries are aware of any life insurance policies you have.
If you’re lucky, the state may have your money
In some cases when a beneficiary fails to claim a death benefit for several years, the money is transferred to the state where the insurance policy was purchased under the escheat laws.
If a company knows an insured died and it cannot find the beneficiary, it must turn the full death benefit over to the state comptroller’s department within three to five years of the insured’s death. The money is transferred to the state where the insured bought the policy. The money is considered “unclaimed property” and gets lumped in with dormant bank accounts and uncollected rent deposits. The comptroller’s department maintains a database that lists the names and addresses of lost life insurance beneficiaries.
Many states will try to contact life insurance beneficiaries in an effort to pay the death benefits. In Texas, for example, the names and addresses of the beneficiaries are published annually in each county in the state. In New York, the Web site of the New York State Comptroller’s Office of Unclaimed Funds has an online search to find any unclaimed death benefits owed to you. You can find out the procedures in your state by contacting the office of your state comptroller or treasurer.
Keep in mind your chances of finding the policy with the state are slim. The insurance company has no obligation to hand the money over to the state if it’s unaware the insured died. In most cases, it’s the beneficiary who contacts the insurance company.
Also, the insurer only transfers the money to the state three to five years after it cannot find the beneficiary but knows the insured died. If the state doesn’t have the death benefit, it’s likely the insurer is still looking for the beneficiary or doesn’t know the policyholder has died.
Unclaimed death benefits are rarely transferred to the state. Dave Potter, a spokesman for Hartford Life, says less than 1 percent of his company’s death benefits go unclaimed.
Del Chance, a life insurance claims manager at State Farm, says, “Turning over life policy benefits to an individual state after the death of an insured is extremely rare. State Farm utilizes their own search techniques as well as outside vendors to locate lost beneficiaries in the event of the death of one of our insureds. By and large these procedures have always located the beneficiary.
Tips for making sure your life insurance beneficiaries get your death benefit:
1. Give your beneficiaries your policy information. It can be a difficult and awkward conversation, but an important one.
2. Keep all your financial records (especially your life insurance policies) in one place. Don’t force your beneficiaries to search your house from top to bottom after you die.
Tips for looking for lost life insurance policies:
1. Go through canceled checks or contact your relative’s bank for copies of old checks. Look for checks made out to insurance companies.
2. Ask those who may have known about your relative’s finances. Speak with the relative’s lawyer, banker or accountant. Also contact the relative’s insurance agent.
3. Contact your relative’s past employers. They might know of possible group life insurance. The insured might have also purchased supplemental life insurance through work.
4. Check the mail for a year. Premium bills and policy-status notices are usually sent annually.
5. Look at income tax returns for the past two years. Check for interest income from policies or expenses paid to life insurance companies.
6. Contact the Medical Information Bureau. If your relative bought life insurance fairly recently, there might be a trail of the companies to which he applied. The Medical Information Bureau (MIB) maintains a database that might show if insurers requested your relative’s medical information within the past seven years. Record searches can be requested through the MIB’s Policy Locator Service and cost $75. The MIB says that nearly 30 percent of searches turn up leads.
Thanks to Insure.com for contributing this article to our Annuities blog:
Visit Insure.com for a comprehensive array of comparative auto, life and health quotes, including a vast library of originally authored insurance articles and decision-making tools that are not available from any other single source. Insure.com is dedicated to providing impartial insurance information to consumers. Visitors can obtain instant quotes from more than 200 leading insurers, achieve maximum savings and have the freedom to buy from any company shown.
Do fixed annuities get paid from reserves if the company does go bankrupt? Like Genworth?
December 31, 2009 by Annuity and Structured Settlement Tips
Filed under More Annuities Answers
Can you answer lori616’s question about Annuities?:
Is Genworth going the way of AIG? as far as
annuities with that company?
Personal Injury Insurance Settlement
Is Genworth going the way of AIG? as far as
annuities with that company?
Personal Injury Insurance Settlement
Annuities - Do Yours Require a Payout to Get Your Money Back?
December 31, 2009 by Annuity and Structured Settlement Tips
Filed under About Annuities
What does it take to get your money out of your annuities? That is a great question. It is probably no surprise that your annuity has surrender charges. However, some annuities require even a little more than waiting that surrender period out to getting your money. What I am talking about are what are typically referred to as two-tier annuities. Let me explain.
So what is a two-tier annuity? Essentially, It is an annuity that makes you go through two phases to get your money. The first phase is a deferral period. In this period, you are basically in ‘waiting’ while your annuity accrues interest. This is essentially ‘the first tier.’ Often times, you may have limited access to your money in this period but it is very limited (5-10% per year). The second phase is called a payout phase. This is when the insurance company pays you your money back. It is typically over a specified time period (usually 5 years or longer).
So let me explain this again. In a two-tier annuity, you invest your money. The ‘investment’ or ‘waiting’ period may be for 5 years (and sometimes as long as 10 or 15 years). Here is the kicker. No matter how long you keep your money in, you can never get it back in a lump sum. You must go through what is called a payout phase which again lasts for 5 years or longer. And what’s worse is that often during these payout phases, the return is sometimes less than optimal. That means, no matter how well you did in your ‘deferral’ phase, your returns might become severely mitigated after you go through the payout phase.
AND FOR THE BIGGEST PROBLEM OF ALL…
The biggest problem isn’t being in a two-tier annuity. The biggest problem is being in a two-tier annuity and NOT KNOWING you are in a two-tier annuity. Often, annuity consumers get shocked to find out that their annuity has a NEVER ENDING surrender period and that the only way to get the money out is by waiting out the deferral phase and taking their money over time. There are some annuities out there that require a 20 year time frame.
Again, the biggest problem is not knowing you are in a two tier annuity. Many clients have NO CLUE that they are in one. As I always say, ignorance IS NOT BLISS. You must know what you are getting in to prior to getting into it. Getting out of these annuities IS EXTREMELY expensive. Know thy annuity and know it well because you are going to have to live with it. Hope this helps.
Thanks to Tony Bahu for contributing this article to our Annuities blog:
So what is a two-tier annuity? Essentially, It is an annuity that makes you go through two phases to get your money. The first phase is a deferral period. In this period, you are basically in ‘waiting’ while your annuity accrues interest. This is essentially ‘the first tier.’ Often times, you may have limited access to your money in this period but it is very limited (5-10% per year). The second phase is called a payout phase. This is when the insurance company pays you your money back. It is typically over a specified time period (usually 5 years or longer).
So let me explain this again. In a two-tier annuity, you invest your money. The ‘investment’ or ‘waiting’ period may be for 5 years (and sometimes as long as 10 or 15 years). Here is the kicker. No matter how long you keep your money in, you can never get it back in a lump sum. You must go through what is called a payout phase which again lasts for 5 years or longer. And what’s worse is that often during these payout phases, the return is sometimes less than optimal. That means, no matter how well you did in your ‘deferral’ phase, your returns might become severely mitigated after you go through the payout phase.
AND FOR THE BIGGEST PROBLEM OF ALL…
The biggest problem isn’t being in a two-tier annuity. The biggest problem is being in a two-tier annuity and NOT KNOWING you are in a two-tier annuity. Often, annuity consumers get shocked to find out that their annuity has a NEVER ENDING surrender period and that the only way to get the money out is by waiting out the deferral phase and taking their money over time. There are some annuities out there that require a 20 year time frame.
Again, the biggest problem is not knowing you are in a two tier annuity. Many clients have NO CLUE that they are in one. As I always say, ignorance IS NOT BLISS. You must know what you are getting in to prior to getting into it. Getting out of these annuities IS EXTREMELY expensive. Know thy annuity and know it well because you are going to have to live with it. Hope this helps.
Thanks to Tony Bahu for contributing this article to our Annuities blog:
To learn more in depth information about the inside secrets about annuities that your agent isn’t telling you or to get annuity help, simply go to AnnuityMD.com.
Tony Bahu is author of the controversial book, ‘Annuities: The Shocking Truths Revealed.’ More information can be found at AnnuityMD.com.
The Latest and Greatest Annuities-related Content…
December 30, 2009 by Annuity and Structured Settlement Tips
Filed under Annuities Updates
I found some great Annuities tips and
resources for you this week. Read on…
Go check out the following tips and resources:
Here are the Annuities articles that were added this week:
Recently Added Annuities Resources:
Would you like to ask a Annuities-related question? Click the “Comment” link below to post your questions. I’ll post an answer for you on the site and in our Annuities newsletter. Subscribe in the right sidebar.
Thanks!
Jerry Strain, Editor i-Annuities.com
