Be careful with annuities

An annuity is an agreement with an insurance company under which you exchange a lump sum of money for a fixed income stream.  By investing in an annuity, you agree to pay a fixed amount up front in exchange for monthly payments that provide a return on your investment.  In many instances, annuities are a wise investment opportunity because they are relatively safe and they pay a higher rate than money market accounts.  Annuities are not, however, always the best investment idea, as they can be detrimental to many types of planning.

Seniors tend to suffer the worst consequences for investing in annuities.  This is because some annuities do not begin to pay returns until after a specified date, called the maturity date.  Oftentimes, the maturity date falls beyond a senior’s life expectancy, making annuities an unsuitable investment.  Moreover, there are often severe tax consequences for annuity beneficiaries.  As such, even though AZ probate law may allow an annuity to pass directly to a beneficiary without passing through probate, there are better ways to pass an inheritance than with an annuity.

Despite having clear disadvantages, many sales agents promote annuities to unsuspecting seniors.  These sales agents typically offer free luncheon seminars where they applaud the utility of their products.  They may tout the notion that an annuity is not controlled by Arizona probate law, and can thus avoid the probate process.  What they generally do not disclose, however, is that they work on a commission basis and may not have their customer’s best interest in mind.  Seniors need to be aware of these tactics and discuss their financial decisions with someone they can trust before purchasing annuities.



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