LB – Insurance and annuities

A. Fixed rate tax-deferred annuities:

Overview –

Of the many types of investments, fixed-rate annuities (with certain characteristics) are considered favorably for certain types of clients.  These are the reasons in summary –

1. Safety of principal – When you invest in a fixed-rate annuity you are guaranteed by the insurance company to get your money returned to you in full, plus interest earned, less any withdrawals.  If you withdraw before maturity, you are subject to a so-called surrender penalty that often starts at 8% and declines 1% for each year until maturity.  However, many contracts allow you to withdraw a percentage (sometimes as high as 10% each year) without any penalty.  The more secure the insurance company (sometimes indicated by their rating by AM Best, S&P and others) the more reliably the guaranty. In addition, state insurance companies often guarantee principal, sometimes up to $250,000 each insured. There is not FDIC insurance on the funds.

2. Good interest rate – It is often higher than comparable investments like bank certificates of deposit. One example, is that Nationwide Insurance Company at this writing on 12/24/22 is paying 5.0% for their “Secure Growth” fixed-rate annuity, both the 5-year one and the 7-year one.

3. Tax-deferral – Income taxes are not levied on the growth until it is withdrawn. Thus, left in the contract, there can be a greater compounding of interest.

4. Flexibility of withdrawal and opportunities – You can decide when to withdraw funds and how much. This flexibility can be helpful in periods of rising interest rates. If market interest rates are rising, you can withdraw 10% per year and reinvest the funds in an investment that pays more.

5. Naming beneficiaries – Similar to In Trust For accounts at banks or Transfer on Death accounts at securities brokerage firms, with an annuity you can name your beneficiary and as owner you can change that.

B. Summary of fixed rate annuities at 11/18/22, prepared by Fran Sisco