Everything has its upsides and downsides. Even immediate annuities, which are considered as low risk investments, can put you at a disadvantage.
For sure, the money you put in any kind of investment is valuable to you. It is something you have painstakingly earned and saved for many years. Most likely, you are relying on your investment to provide you a stable source of income after you have stopped working. You need it not only for your future but also for the future of the people you care about the most.
Because you can’t afford to lose your hard-earned money, consider the following.
1. Immediate annuities give relatively low returns when compared with other investment tools. Because the immediate annuity is a low risk investment, the returns generated by this annuity are less when compared with the returns generated by stocks. If you are an investor looking for an investment that can give you a high rate of returns, the immediate annuity may not be an option for you.
2. Like with other investments, your money is in danger if the issuing insurance company suddenly goes bankrupt and says goodbye to business.
Investors always fear that the company they invested in will go bankrupt. If your insurance company suddenly goes out of business, your investment will be unsurprisingly drastically affected. Contrary to popular belief, you will not lose all the money you had invested. The impact of bankruptcy to your money will be lessened by distributing your annuity purchase among a few different contributors.
3. The rate of returns you get from your annuity will not increase even if the condition of the stock market or the economy improves.
If the annuity you purchased is an immediate fixed annuity, the interest rate of your annuity account will remain the same as the rate of interest indicated in your annuity contract. When you buy fixed annuities, your investment is automatically locked into a specific interest rate that is based on the financial condition of the company and the stock market in general at the time of your purchase. In other words, you will not bring in profit in case the condition of the stock market improves.
4. If you pass away some time after you have purchased an annuity contract, the insurance company will keep your premium.
The insurance company will keep the money you invested in your annuity account if you die shortly after the purchase. You can steer clear from this disadvantage by purchasing an annuity contract with a minimum guarantee period. In case of an untimely death, the beneficiaries you indicated in your contract will automatically receive income from your annuity until the expiration of the contract. However, the income they will receive is a little lower than the income you would have received if you were still living.
5. You cannot access your capital. Once you have signed the immediate annuity contract, you can no longer have access to your capital – the premium you have paid to the insurance company. Consequently, you cannot consider the money you invested as emergency money.
These are the five major disadvantages that are associated with immediate annuities. It is important to keep them all in your mind when you are planning to purchase this kind of annuity. Remember, it is a must to weigh and consider all the possibilities.
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