Like any investments, annuities carry risks. For example, if you pass away before the payout period, you miss out on annuity payments. In addition, it may not be easy to take money out of your annuity account after you’ve invested it. Investors should research the insurance company that is underwriting the annuity. Risks include:
- Missing the income benefit. The idea behind annuities is that you save money now to have an income stream for the rest of your life. If you suddenly pass away, you would miss out on that long-term benefit. Some annuities allow you designate a beneficiary, but it may come with an extra cost.
- Tying up money you may need. Once you’ve invested your money in an annuity, it can be difficult to access it or cash it out if you suddenly need those funds. For example, some immediate annuities take away access to your principal after you have invested it, even though the payments begin right away.
- Insolvent insurance companies. Because an annuity is a long-term investment, you’ll want to make sure the company you purchase it from is around for the long term. Investors should investigate the credibility, history and credit standing of potential annuity providers.
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