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When it comes to discussing annuities you have to understand what they are and how they work. An annuity basically pays small amounts of money to someone over the life of the annuity’s contract. The problem is that’s just the short version of how they operate. As stated in our earlier post this week on ‘Why you should NOT buy an annuity’, annuities are complex vehicles for investing, so be sure you understand what you’re doing before you do it. In contradiction to my last post, here are five reasons you may want to buy an annuity.
Five reasons to buy an annuity
- You aren’t healthy enough to get life insurance. For whatever reason it may be, you just can’t get a life insurance policy due to health. Perhaps you have a pre-existing condition they won’t work with you on. Or maybe your bad health makes it too expensive. In this case, an annuity makes sense and allows you to increase the amount of money you’ll leave to your loved ones after you are gone.
- It offers long-term care benefits you otherwise wouldn’t see. If you aren’t insurable, then some annuities allow you to add a long-term care rider on top of the annuity. So you can take your money and multiply it in the event you need long-term care.
- You want a guaranteed income. Riders on annuities, whether fixed, index or variable, offer flexibility backed by the insurance company. As long the insurance company is viable, that rider stays in place. However, remember, there is nothing in life guaranteed except death and taxes.
- You want a guaranteed return. There are products out there that guarantee your money will double, whether it’s a five, ten or even fifteen-year return. Fixed annuities, for example, provide a set interest rate, very similar to CDs underneath market conditions.
- Principal protection is possible. Some people just can’t handle the emotional roller coaster of the stock market. Sleep alludes them at night when they think there’s a chance they’re losing money. It’s possible to find annuities that actually offer protection for your principal. However, be careful though, an annuity that promises all the best of the stock market with no downside, thereby protecting your initial investment is tricky. That’s just not true. These are called index annuities or variable annuities. Just because you have the money in an annuity doesn’t mean the value of the annuity is not going to move up and down. That’s where these principal protection riders come into play.