Questions to Ask Before Signing

Last updated: March 28, 2016

1. Have you done some comparison shopping and considered all of your options?

  • Because annuities are long-term savings vehicles, you want to make sure the company you pick will be around at least as long as you will.

  • Annuities also offer a wide range of choices, prices, features and flexibility. Make sure your plan will work for you in the long run.

2. Does the rate on a fixed annuity look too good to be true?

  • You want a competitive interest rate at renewal time. If the company is offering bonus rates (a higher interest rate for a set period of time):

    • Make sure the underlying interest rate without the bonus is financially attractive, considering any additional contract costs or early surrender fees.

    • Once the bonus rate term expires, there is no guarantee going forward that renewal rates will be competitive.

    • Be especially careful if you are exchanging annuities.

3. What are the annuity’s surrender fees and how long are they in place?

  • If the surrender fee is high (typical fees are around 6-7% and decline over a period of approximately five to seven years), you could feel locked into a contract from which it will be costly to escape.

4. What is the track record of the funding options offered in a variable annuity?

Don’t be swayed by last month’s top performer.

  • Look for strong returns over a three- to five-year period or more.

    • Newspapers such as Barron’s and the Wall Street Journal publish rankings of various funding options on a regular basis.

    • The history of various funding options also can be found in Morningstar and Lipper Analytical Services publications.

  • Remember, past performance is not a guarantee of future results.

5. Does a variable annuity offer multiple funding options in case you change your investment strategy down the road?

Look for a range of funds to diversify your retirement savings as your needs change.

6. Will your ordinary income tax rate be greater than the current capital gains rate when you begin to take distributions (possibly at retirement)?

If so, you may pay more in taxes by choosing annuities over another investment that would be taxed at the capital gains rate.

  • Keep in mind, however, that your money in an annuity is accumulating on a tax-deferred basis.

  • By selecting an annuity, you avoid paying yearly ordinary income tax on the earnings while your money compounds and grows.

7. I have been advised to cancel my existing annuity contract to purchase a new annuity. What should I know?

This is called replacement. You should proceed carefully before surrendering or exchanging your existing annuity to purchase a new annuity.

  • You may incur surrender charges for terminating your existing annuity, or your existing annuity may have options or features not available under the proposed contract.

  • Do not replace an annuity contract without fully discussing the proposed change with both your current agent and current company.

8. What is the insurance company’s rating?

While anyone who is properly licensed to sell insurance products (e.g., banks, brokers, agents, etc.) can sell annuities, the annuity contract is issued by an insurance company. Financial stability helps ensure a company can pay its claims and meet its future obligations.

  • The Kansas Insurance Department enforces statutory requirements and monitors the financial stability of companies licensed and operating in the state. You can check a company’s financial rating by contacting one of the following organizations:

             Moody’s Investor Services

             212-553-0377, www.moodys.com

             Standard & Poor’s Insurance Rating Services

             212-438-7280, www.standardandpoors.com

             TheStreet.com Ratings

             800-289-9222, www.weissratings.com

             A.M. Best Co. Ratings

             908-439-2200 www.ambest.com

             Fitch Ratings

             800-893-4824 www.fitchratings.com

This article is published on KansasMoney.gov. Find more information by contacting these state agencies: