What is an annuity?
In a nutshell, annuities are a CONTRACT between you and an insurance company, that provides for the systematic accumulation or disbursement of money. Most annuities are used for purposes similar to a CD, where a person saves money. Other types of annuities are used to create incomes, or payments to a person over a period of time. Life Certain Annuities create an income for life, with a single cash deposit, as interest and principle are paid in equal monthly installments. Remember, it’s a contract and the details are in the proposal. It's important to read and understand an annuity BEFORE purchasing it.
Miller and Associates sells annuities for two companies:
Auto Owners Insurance 1.5-2.5% fixed annuities, with 1% guaranteed minimum rates depending on the type of annuity chosen.
Gleaner Life 1.5-2.5% fixed annuities, with 5-10 year terms and 1% guaranteed minimum interest depending on the annuity.
These companies were chosen for their strength, stability, favorable contract provisions and long term conservative investment philosophies. Both of these companies are Mutual companies and owned by the annuitants. We do not sell for any other companies.
What should I consider when buying an annuity?
Before purchasing an annuity, it's important to have a good understanding of the following:
- Interest at inception
- Length of commitment
- Terms of surrender
- Surrender penalties for early withdrawal
- Guarantee of Principal
- Beneficiary in event of death
- Guaranteed minimum interest
- Provisions for interest fluctuation
Pitfalls to watch out for:
As an annuity is a contract, the contract can have penalizing features. Some common problems are:
High first year interest (what happens after first year bonus)
Very long commitment period (some as long as 17 years!)
Extreme penalty for surrender and no logical early outs such as death or entry into a nursing home etc.
No guarantee of underlying investment (Variable annuities-watch out!)
Very low guaranteed minimum interest rate (these are usually combined with very high first year interest and long contract terms)
Commonly high bait rates have terms that allow the contract to fall to a very low interest rate for the remainder of the contract. In these annuities, after about 3 years the average interest earned is much less than the market rate for safe investments, and the annuitant is essentially being taken advantage of.
Promise of high returns. BEWARE, if the rate is above market rates for safe investments, then there is either unusually high risk or false statements. You want safety first, and an insurance company is not a magician. They can't magically make money, and neither could Madoff.
The underlying basis for variable annuities are variable based products such as stocks and bonds. These are risky investments, and your principle or the money you have invested can be erased by market losses.
The underlying basis for fixed annuities are government guaranteed bonds and treasury bills. These are very stable and the company that issues these contracts also guarantees that your original investment will not be at risk and also guarantees a minimum rate of interest return for your investment. Most Annuities sold are fixed annuities.