If you are looking for annuities in Pennsylvania, there are some things that you need to know. Every state has slightly different annuity rules since they are a form of life insurance and governed by each state’s laws in this area. Still, the nuances are pretty small, and the basic facts will remain the same from state to state. Here, we’ve put together a brief guide to help get you started. Our goal is to give you enough information so that you can make an educated decision and select the right product for your retirement needs.
In the State of Pennsylvania, an annuity operates just like it does anywhere else. Some people refer to them as “old age insurance.” They are a life insurance product, but rather than paying out when you pass away, they begin paying benefits while you are still alive, after you reach retirement age. There are two main types of annuity when looking at when you start receiving your money back. For the sake of simplicity, the generally agreed upon time period is one year. If you start receiving disbursements within a year of initiating your contract, it is considered an immediate annuity. After one year, the annuity is considered to be a deferred annuity.
When it comes to types of investments, there are two main types as well. One is a fixed rate annuity, where the rate of return is set and agreed upon before the implementation of the contract. These may change, depending upon the terms that you create with your insurance company, so make sure that you read the fine print very carefully. The next kind is called a variable annuity. These will have fluctuating rates of return because of the fact that they are tied more closely to how specific investment assets are performing. With these, it is conceivable that they can lose value, so they work best as deferred annuities as markets tend to trend upward. A subclass of these are equity indexed annuities. They are variable in nature, but they are associated with a major index like the S&P 500, rather than random funds or group of assets.
You will need to spend some time thinking about what your goals are and which type of annuity will help you to achieve those best. If you have questions, feel free to contact a trusted insurance agent to help you go over your options. Just remember that to sell variable products, your agent will need extra state and federal licenses. Otherwise, they will only be able to offer you a fixed rate annuity.
There are a few things that you should add to your annuity, assuming they will benefit you. The first is a bonus. Let’s say you purchase a fixed annuity contract that has a rate of return of 5 percent per year, but the company will also add another 5 percent onto your first year’s disbursement. This can give you some extra cash in your pocket, but ensure that it doesn’t replace even more money later on. The point of an annuity is to grow your money over time and then return it to you so that you have a set and predictable income each month. If your bonus doesn’t help you over the long term, it’s not worth it in most cases. It all depends upon what your end goals are.
There are also a number of riders and add-ons that may benefit you. When you are looking over your options, be sure to ask your insurance agent exactly which would be most helpful to you. Do be warned though that the typical rider will have a maintenance cost associated with it. Because they usually max out at 1 percent per year, they may or may not be beneficial to you. Again, this is completely dependent upon you and your goals for your annuity.
Things to Watch Out For
Unfortunately, not every insurance agent is completely honest. This is why it’s so important that you know the rules, how annuities work, and what you need out of an annuity, you can better prepare yourself for the warning signs of when things are not quite right.
One popular misuse of annuities by an insurance agent is called churning. This involves moving annuity funds around so that the agent benefits. Remember, a life insurance agent typically earns commissions when they sell a new contract. If you have a current annuity that you are happy with, but you are being pressured to exchange that one for a new one, that could be an instance of churning. There’s no point in moving your funds if you are satisfied with where they are. This would create a new sale for the agent, but it wouldn’t benefit you in any way. This is churning and it is unethical. Avoid these situations.
In Pennsylvania (PA), there is a buffer of time called the Free Look Period. This is 10 days long starting from when the contract is signed, and it gives you some wiggle room to protect yourself. Thanks to this timeframe, you may back out of your contract if you think you were treated unfairly or have second thoughts without being subject to a penalty. In the event that your new policy was replacing an existing policy, you will have longer than those 10 days in order to further prevent misrepresentations by agents.