Annuities(and other Insurance Planning Products)
An Annuity is a contract underwritten by an insurance company which provides for a lump sum payment or a series of payments to the beneficiary,(the income phase), after the company has collected a lump sum or series of annual payments, (the deferral phase), from the policy holder a.k.a. annuitant
The two most common types of policies are an Immediate Annuity which as the name implies, starts to pay you right away and a Deferred Annuity which pays you down the road. If you are close to retiring you would pick the former and if you have some years to go before retiring you would pick the latter. Additionally, both types can be purchased with a fixed income stream as in a Fixed Annuity or if you want to take your chances and reach for a higher payment, (because you now know about Risk & Reward), you could pick a Variable Annuity which is subject to the vagaries of the stock market. A Fixed policy is strictly a life insurance product while a Variable policy is basically a mix of mutual funds wrapped inside an insurance package. The mutual funds are known as the sub-accounts under the Annuity policy and you will be picking different mutual funds to make up these sub-accounts. Because this is an insurance product there generally is a commission involved. This fee will take a small slice out of your overall return. The other big negative is a surrender charge if you try to cash out the policy right away, but this disappears slightly every year until it is eliminated usually after year seven. The money you invest in an annuity grows tax-deferred until you start to make withdrawls. At that time the principle comes back to you tax free while you pay regular taxes on the interest. The biggest advantage of an annuity is that there is no limit on how much you can put away. This amount then grows and compounds tax-deferred!
Finally, there are several variants of a traditional annuity that you can take advantage of if they are appealing to you. One of the more popular scenarios includes payments to the annuitant while alive and then the policy continues to pay the surviving spouse upon the passing of the annuitant. Long Term Care InsuranceLong Term Care Insurance (LTCI),is not usually on the front of people's minds as are the four pillars of insurance on page 1. That is mainly due to the low incidence for need of such a policy. Less than 10% of people 65 years old or over will need this kind of policy. One can look at their own hereditary for signs of a debilitating illness to see if it runs in their family. This would increase your chances of needing such care as a nursing home stay. But and this is a big but, if you are a candidate, it would behoove you to look into Long Term Care Insurance. The average price today (2009) in a nursing facility is over $200.00 per day. This is projected to increase by $100.00 per day for every decade going forward. So ten years from now, you could reasonably expect to pay over $300.00 per day in a nursing facility. That comes out to just over onequarter of a million dollars for the average 2&1/2 year stay in a home!!
While no one relishes the thought of having to pay insurance premiums, there are ways to lower your costs for LTCI. The most common is to increase the elimination period. This is insurance talk for how long you have to wait before the payments start as in 30, 60, or 90 days. You can also make several calls to nursing homes in your area to find out their daily rate and aim to get coverage for at least 70% of that number. Finally, you could also get coverage for a shorter stay than the national average. Disability InsuranceAs the name implies, Disability Insurance is designed to replace a person's income should the need arise due to disability. According to current actuarial statistics, one person out of ten under the age of 65 will require disabilty income. As this is such a low percentage, this insurance like LTCI above, is not at the front of one's Insurance Planning needs. If you decide to pursue this policy, you will learn that the premium is based on many factors such as short term versus long term disability, partial disability versus permanent disability, elimination period or how long you have to wait before receiving a check, the amount of the check in relation to your pre-disabled state, what are the exclusions to the policy and finally, will your check adjust for inflation. There is a small ray of sunshine in all of this. If you bought the Disability Insurance with after tax dollars, the disabilty income checks will be tax free.Umbrella InsuranceNo this is not about the weather! Umbrella Insurance is designed to supplement your other policies, particularly, your homeowners and auto policy. With all the litigation out there and the large awards to boot, an Umbrella Insurance policy will take your policy limits of liabiliy to new heights. With this protection comes the added comfort that allows you to sleep better at night at very little additional cost. This is because your current policy limits are exhausted first before umbrella insurance kicks in.Last But Not LeastOur Insurance Planning section would not be complete without at least casually mentioning the following topics which you would look into if they applied to you. Let's not forget about Insurance Planning for: 1)Motorcycles, 2)Watercraft, 3)R.V.'s, 4)Pets, 5)Personal Articles.
As with all the other policies mentioned prior to this section, premiums will no doubt be closely tied to the value of whatever it is that you are insuring. As always, you can lower your costs by increasing your deductibles and lowering your limits. I hope I have answered all your questions on Insurance Products. If you did not find what you are looking for, try Google Search! For more reading on Insurance Planning Topics, may I refer you to the following publications: Annuities! Shocking Secrets Revealed
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