Anyone who has seen the movie Fantasia can readily remember the scene showing Mickey Mouse as the sorcerer’s apprentice. Carrying unending buckets of water, the sorcerer is not able to turn off the water flow and the final scene shows a flood.
If you change the cargo that Mickey is transporting from water to cash, you can readily understand what an annuity is all about. Visualize a bucket of cash arriving in your mailbox or bank account for as long as you live, and you have an idea of what annuities are designed to do. Unlike the sorcerer, you do not want to stop Mickey in his task. You want that income to keep on flooding into your account.
If you look up the meaning of annuity in a dictionary, you will find that it is a “specified income payable at stated intervals for a fixed or contingent period, often for the recipient’s life, in consideration of a premium paid.” Quite so!
Here is another definition: ” An annuity is a certificate of deposit with an insurance company that pays a higher rate of interest than a bank certificate, allows you to defer taxes on income you do not use, and offers a variety of payouts that you cannot outlive.”
Most people think of an annuity as a contract issued by an insurance company, but there is also such a thing as a “private annuity.” In this instance, the obligation to make good on the agreement rests with an individual or other non-insurance entity.
Is the value of a lifetime income becoming more acknowledged by the planning community? This fact was recently called “the longevity risk” by a representative of one of the largest mutual fund organizations in the world. In other words too much life left over at the end of the money! This is the risk that is addressed by using annuities.
Annuities are pretty imposing documents for most people, and thus they have become one of the least read best sellers. After all, who has the time to become familiar with all the jargon – even though it has a direct impact on one’s financial well being?
All insurance contracts should be viewed as property. They are financial assets that can be compared to real assets, such as homes and automobiles. An annuity is an income producing asset. Think of it as real property, like a rental house. Unlike a rental home, however, you have no tenant problems or other management concerns.
Annuities are safe money investments. The source of their safety is discussed in the following chapter. While it may be surprising to many, even Variable Annuities can be categorized as safe money, simply because of the guarantees that are not available with alternative investments. While annuities may be appropriate for those with a long-term outlook, there are some variables that cater to those who need total liquidity. In other words, no surrender charges.
Not to be confused with annuities, a Life Insurance plan can be looked upon as a certificate of deposit for your heirs. It is an estate asset that can be acquired at a substantial discount. In addition, for senior citizens who enjoy good health, there are insurance plans available that make other forms of investments take a back seat. Such insurance plans are designed for those seeking to create a legacy for their heirs or their favorite charity.
There is a saying; “If you don’t know the merchandise, know the merchant.” That certainly applies to the idea of dealing with insurance. If you go to buy a diamond, you are comforted in knowing the person who is selling it. Most people cannot tell the difference between a diamond and a cubic zirconium.
In spite of the fact that some insurance salespeople have found it necessary to use pressure sales tactics, it sure is nice when you can find one who can be trusted to give honest counsel that ties in with your financial interests and objectives. More and more, you will find that the representative you speak with will be well informed and conscientious. Insurance companies do not care to have their names associated with any abuse.
Over the years, it has been rewarding for many agents to witness the actual performance of insurance contracts when they are needed. In spite of the credibility gap some people experience when dealing with insurance contracts, most people are very grateful to have had the foresight to have the insurance in place when needed.