Creditor Protection and Other Protection of Fixed Annuities
What Protections Does a Fixed Annuity Offer?
Asset protection is an important consideration when deciding on retirement investments. One investment of particular interest to retirees is the fixed annuity. Annuities are geared to protect you from running out of income while you’re living.
But because a fixed annuity is an insurance product, it has special protections afforded insurance over the years. So, beyond protecting a lifetime income for you let’s, summarize some other protections that a fixed annuity offers you.
While you’re living, a fixed annuity offers you 3 protections. They are protection from
· Market fluctuations: Because fixed annuities offer guarantee of principal and an interest. You’re protected from the loss in principal and earnings that stock and bond market investments are vulnerable to.
· Current taxation of annuity earnings: Since fixed annuity earnings are tax-deferred, they’re not reported on your tax forms. This keeps your fixed annuity investment off your tax records until you withdraw money from them. This affords you a privacy feature.
· Lawsuits: Annuities are generally[1] not liable to attachment or garnishment in favor of any creditor of the person insured under the contract,. i.e. annuities offer creditor protection
Because your annuity is a contract with an assigned beneficiary, it gives two more protections when you die. They are protection from
· The probate process: Your fixed annuity investment transfers immediately to your beneficiary. This minimizes costs associated with probating this money, avoids its characteristic delays, and keeps the transfer of this money private – another privacy feature.
· Contestability: No one may contest your decision as to who will receive your fixed annuity benefits at the time of your death. Assets subject to your will can rightly be contested.
Curious about how much fixed annuities pay? See current rates on the fixed annuity calculator.
Note: Fixed annuities once annuitized cannot be surrendered for value. Income from deferred annuities is taxed as ordinary income and withdrawals prior to age 59 ½ are subject to a 10% penalty. Income from annuitization is taxed part as ordinary income and part as return of capital. Any guarantees are based on the claims paying ability of the insurance company. Annuities should be considered long term investments. Annuities are insurance products and subject to insurance related fees and expenses.
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[1] These are state-related issues. Check with your state laws; as an example: Florida Statute 222.13 states: “whenever any person residing in the state shall die leaving insurance on his or her life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy.”
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May 25th, 2009 at 1:37 pm
I was not aware of all the great protection that a fixed annuity offers. Protection from market flucuation alone should be a good enough reason to choose a fixed annuity.
June 3rd, 2009 at 5:45 am
I knew that annuities had great benefits especailly about deferring taxes now - but did not realize they had all those other benefits - especially against lawsuits and garishments - meaning that no matter what happens - you still have some income to live on. Great post.
June 28th, 2009 at 4:04 pm
fixed annuity is a good service, so you can protect the person and avoid charges that could get out of our hands, it is better to have a plan as it is Fixed Annuities.
July 26th, 2009 at 10:35 am
Was anyone’s annuity plans at risk with the recent financial meltdown? Annuity plans are great, but no one can predict what will happen in 20 years… another 2008/2009 in the future with all this govt debt?
October 26th, 2009 at 5:47 am
Annuities are a great way to protect assets for those that still have assets left to protect. It has been a harsh year.
November 13th, 2009 at 10:56 am
No annuity is absolutely guaranteed. What the market showed us in 2008 is that EVERY asset class can tank simultaneously. There is risk, unavoidable risk, in even the most highly rated annuity issuers. Their vast funds are invested somewhere, and if the market should decline 50, 60, 70 percent, interest rates go down next to zero, the dollar fall or soar, the basis for their annuity payments might be so compromised that their payouts fall or fail. Even the default of the US is a possibility. The phrase “recent financial meltdown” is misleadingly reassuring–it was NOT the gravest kind of financial disaster by a long shot. Caveat emptor.
January 1st, 2010 at 3:58 pm
I am totaly agree, fixed annutiy is very good service..! Great article.
January 15th, 2010 at 3:43 pm
I worked in an annuity shop for 14 years in IT, but over that much time, I absorbed a lot of information about annuities. I held the products in fairly low regard for a long time, but now I think of all those people who bought annuities through our agents at the quote, “abysmal” rates between 4 and 8 percent. Those people are sitting pretty while all the speculators from stocks to real estate have been hammered and destroyed. Just think of it, OJ Simpson the murderer has a $2M annuity that provides him with a comfortable $200k/yr income (if he ever gets out of jail again to enjoy it) Not a promo of the fallen Juice, but an example of how resilient a product annuities really are. I wish I’d invested in one when I had money.
January 15th, 2010 at 3:46 pm
re: OJ, I meant $4M not $2M that would be an “average” fixed annuity rate in 1994 when it was revealed that he had it.
January 25th, 2010 at 8:14 pm
The probate process: Your fixed annuity investment transfers immediately to your beneficiary. This minimizes costs associated with probating this money, avoids its characteristic delays, fashion
and keeps the transfer of this money private – another privacy feature.
January 26th, 2010 at 8:14 pm
This is some very useful info to me. I also didn’t realize the full extent of protections offered by fixed annuities.
Boomerscout also makes a very good point though. Of course it is just common sense not to put all your eggs in one basket, no matter how secure that basket may be.
February 8th, 2010 at 4:15 pm
I’m an asset protection attorney that works with clients nationwide, often through their fiancial planners and CPAs.
I agree annuities offer great benefits beyond just the investment question, and many states offer similar benefits for the cash value of life insurance policies as well, in some cases they are creditor protected 100%.
You are going to see an increasiong interesction of legal and finacial planning in the future - see more here: http://www.worth.com/index.php?option=com_advisors&id=130&view=single
Thanks, Ike