Read the Fine Print
This is certainly appalling. Annuities are meant to be helpful, not harmful. In the case of this woman however, her annuity was actually a large burden to her and her family. Luckily, advocates for her were able to appeal the insurance company’s decision and give her access to her cash, but there are still a lot of remaining issues for her.
The problem that this woman ran into occurs often. Usually the issue is not this severe, and even when it is, it is almost never this widely publicized. But this issue is not one that you should remain ignorant of. The reason why this woman was unable to access her money was because there was a renewal clause within the fine print of her annuity that went into effect after every ten year period within the life of her contract. If she did not opt out of that renewal, her money was virtually untouchable for the next ten years. This woman did not have that part of her contract explained to her well enough and she wasn’t aware of it. Furthermore, the renewal notices that she had received went unread because she had lost her eyesight.
The bottom line: she wasn’t aware of the fine print of her contract and suffered needlessly as a result of that.
If you are going to purchase an annuity, it is important that you are aware of what it is designed to do and how it will do those things during each stage of your life. An annuity can do a lot of good for you, guaranteeing that you have a steady stream of income for the remainder of your life. When done right, an annuity might be the best investment choice that you could possibly imagine. But when done incorrectly, an annuity can be a life sentence.
Working with a financial professional can alleviate this. The fine print can be explained, and the potential pitfalls that come with all investment options can be better explained and thus more fully understood.
Finally, it’s important to look for flexibility. An insurance agent that wants to push a particular product over another to you might be doing this because they truly believe that this will be what’s best for you. Or, they might know that they will receive a bigger commission check if you go with one over another. Either way, it’s important to know what’s going on behind the scenes. Know what you’re looking for, and do not settle for a good product. Wait for a great one.
Going back to the original example, I think that it would be inaccurate to say that the original contract was bad. In fact, she chose this particular annuity decades ago because it met her needs. But our life situations change over time. What was perfect last year might not be helpful a year from now. When you are choosing your investments for retirement, this is something to keep in mind. Finding an annuity or other investment that offers you what you need now and has the flexibility to grow with you as your needs change over the course of time. This might mean not annuitizing your contract until the very last minute, or maybe even never annuitizing it. It might mean transferring your money from one contract to another.
Avoiding Annuity Problems
You can avoid these issues when you purchase an annuity. Start out by setting a list of goals for yourself in place. If you know what it is you’re looking for in an annuity, you are far less likely to settle for something that doesn’t help you to achieve your goals. Next, don’t buy the first annuity that looks good to you. That annuity might very well be the best one for you, but when you’re planning for the long term, it makes very little sense to rush a decision. In fact, because this is a long term decision, taking a few extra weeks to arrive at the right answer will seldomly do any sort of harm to your financial wellbeing. You will have to live with your immediate decision for years, and postponing that decision for a short period of time can do far more good than harm.
The important thing is that you speak with a professional financial advisor if you have any questions about what’s best for you, your family, and your money. Finding an advisor that is not trying to sell you something, but who truly wants the best for you is important. Many of the problems that people encounter with annuities are simply because an agent has suggested a good product to them, but not necessarily taken the time to find the best product. Because agents usually work off of commission, there is very little incentive to look hard for the perfect annuity for a client when they can suggest something that works well and gives them a decent paycheck.
Not only is this unethical, it can be harmful, as in the above cited case. Take your time during your annuity search and find someone who is willing to work hard for you and present you with several options so that you can get the guidance that you need to make the best choice. Annuities have become overcomplicated over the years, but this doesn’t mean that all of them are harmful or that insurance companies are looking to compromise the best interests of their clientele. Finding a good annuity is possible, but you need to spend some time looking at what your options are, and you need to do so under the guidance of a professional.
When this occurs, the horror stories that we have all heard about bad investments will become a thing of the distant past.