How Liquid is your Insurance Annuity
Retirees often want to know how quickly they can get to their money in case they need to cover extraordinary expenses such as a medical emergency, or a home or auto repair. This need for liquidity may cause them to avoid and insurance annuity. However, when you look closely, you will see that insurance annuities can possibly provide access to funds that can accommodate many circumstances.
For instance, what if you need to take out money before the insurance annuity matures? Most annuity companies will let you remove a portion of your account’s value each year without paying a withdrawal charge. This is usually 10%, and once the surrender charge period expires, you will be able to withdraw as much as you want without paying any penalties to the issuer. But an insurance also can allow for other circumstances.
Suppose you are worried about money for future long-term care or a medical emergency. Some annuity companies will give you penalty-free access to your funds if you have to go to a nursing home or come down with a critical illness.
And what about income?
If your situation changes and you need income from your insurance annuity, you will have the opportunity to annuitize the contract and receive payments for a fixed period or life. This option is available after one year of buying the insurance annuity. Once you annuitize the contract, the annuity is not considered includable for Medicaid qualification purposes in some States (the income could be, however).
What happens when you die? Will your survivor get the money he or she might need?
The annuity company will transfer the account’s value to your designated beneficiary without any surrender charges, penalties, or probate fees in almost all cases (you can check this in the contract first).
Do you think that there is a chance that creditors might come after your money? Many states’ laws protect insurance annuities from creditors.
So before you decide that insurance annuities do not offer the ease of access that you might need to your funds, look at the complete picture. Examine what you might need this money for—what situations would you consider potential emergencies? It is possible that an annuity company has just the right option for you.
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Tags: insurance annuity
February 25th, 2009 at 6:23 am
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May 1st, 2009 at 12:19 am
penalty free access of our funds, really very useful policy and great support by insurance company but very few of company provides such service. if all company start such support of penalty free access of money it helps to policy holder money situation.
June 3rd, 2009 at 2:36 am
I agree that insurance annuity is not meant for everyone. Your financial goals (what you need with the money? for retirement? kids inheritance?) is the important factor before buying one.
Moreover, beware of the early withdrawal charges! Like back-end loaded mutual funds, annuities charge owners for withdrawing money in the first few years. But the annuity penalties, called surrender charges, are staggering.
If I’m not mistaken… It typically ranging between 5% and 7% in the first year alone !
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June 27th, 2009 at 12:06 pm
Thanks for the info. I’ll have to keep annuity in mind.
July 6th, 2009 at 12:44 am
Yes ofcourse,the annuity company has definitely been a better option for us when it comes to insurance policies.The penalty free access is its greatest benefit.
July 15th, 2009 at 7:06 am
It’s true that insurance annuity is not for everyone. And it depends on situation and your financial targets.
Very useful article!
August 18th, 2009 at 9:04 pm
Great information! I didnt realize that insurance annuity had this type of risk asscoiated with it. Now I am well informed!
Ryan F - Real Estate Professional
September 1st, 2009 at 6:37 pm
Always been a big fan of annuities. Those penalty free ones could be extremely hard to find though.
September 2nd, 2009 at 2:08 am
Yes agree some of states protects insurance annuities from creditors but due to different lows in different states it little bit need to think more before take any decision but your article quite been helpful.
September 17th, 2009 at 5:26 am
Yeah it depends on your purpose, for me it’s a fixed annuity, these will prevent you from withdrawing money for a period of 5, 10, 15 or more years. However, depending on the company, fixed annuities may allow you some access to your investment, commonly the investor can withdraw annually the interest and up to 10% of the principal, and that’s what I do.
September 20th, 2009 at 2:12 pm
Thanks for the great article. I was a little bit scared about those insurance annuities before. I thought what if I will need my money quickly? What if I will face an emergency situation? I thought that they will not give me cash at any period I want, but after reading your article, my opinion has extremely changed. So thank you for opening my eyes.
January 29th, 2010 at 5:12 pm
Insurance annuities are becoming more and more flexible to increase their popularity and market share, they are still quite an archaic product and many often shy away from using them however I think more articles like this and greater transaprency in the use of annuities could help individuals utilise the insurance annuity as part of their financial armoury.
February 19th, 2010 at 1:17 am
What are the costs associated with this type of insurances and how does it compare to other types of insurances? It sounds very flexible and easy to get access to funds which would be great for a person who has lost their income through ill health or an accident. Is there a way to find out if you do take out money early is there penalties for doing this? Also is it possible to borrow against the value of insurance annuity? I would like to find out more about protecting income in the future.
February 24th, 2010 at 3:59 am
I was looking in google for insurance annuities and I finally found it.
Thanks for this perfect explanation I will a copy from that booklet
March 5th, 2010 at 12:10 pm
Penalty free access is for sure one from the major benefits but i ask myself “is this really so?” Or are there maybe some hidden fees?
If not, great. Thanks for the great blog post. I will read more about annuity insurance. Would like to get better deals with this.
March 25th, 2010 at 11:59 am
I bought an Insurance from an insurance company and they offer me an insurance annuity. I got charge at a very high rate when withdraw it is crab how can they do that to me.
hate them
March 25th, 2010 at 12:04 pm
I agreed with “forex killer” an annuity company is a better option for us. I found this one great insurance company they walk the talk and I like it =)
April 21st, 2010 at 2:22 am
You’re right to highlight this to consumers. These days more than ever before insurance companies push low premiums in front of people’s faces as the only thing to look for, and slip in restrictions on things like this down the line. It works too, because most people dont look at the small print and the actual cover and exclusions they’re getting. So well done for doing your bit to educate people on one aspect of this.
June 26th, 2010 at 3:33 pm
Always been a big fan of annuities. Those penalty free ones could be extremely hard to find though.
July 16th, 2010 at 5:45 pm
good post for newers. Many people still don’t know the risk of annuity. The penalty free access is annuity’s greatest benefit.
August 11th, 2010 at 4:16 am
Let’s see what annuity is
There are two possible phases for an annuity:
* The accumulation phase in which the customer deposits and accumulates money into an account, and ;
* The distribution phase in which the insurance company makes income payments until the death of the annuitants named in the contract.
You can structure an annuity contract so that it has only the distribution phase; such a contract is called an immediate annuity.
With the complex selection of options available, consumers can find it difficult to decide rationally on the right type of annuity product for their circumstances.