« Are foreclosures an option? | Main | Lease Option »
Annuity Trap
By cpa | February 20, 2008
The market has bought a pandemic annuity, mostly by insurance companies designed to sell a annuity contract. The contract is purchase from insurance companies and immediately understand the rights and responsibilities of Legal document. Before there was a decision, buyers should carefully examine the size of the contract terms. Best to find an experienced, reliable professionals coming together participating in detail. With the insurance industry can not single words, promotion of the language. Not a matter of chance.
Since the purchase annuity There are two Cat and the two periods. Two period is the contribution period (that is, payment terms) and the extraction period. Of course, the contribution period may be longer or shorter, more can be a one-off payment. Extraction period annuity set the date of the contract. Maturity can be purchased at the start drawing of the annuity provisions of the contract amount. Generally speaking, it can be extracted on time, can also be a one-off-all mentioned. Also choose from time specified number of years or the life of another. Most of the annuity contracts allow buyers due to extraction method for the decision. If the purchaser before the expiry of the cease contributions or asked for early withdrawal, it will lose some of entitlement. Losses may only be one or two percentage points, it may also be a number of 10 percentage points in terms of the contract shall prevail.
Traditional annuity
From the theory of the annuity can be divided into traditional and non-traditional two Cat. Since the purchase of the traditional annuity contract at least has the following characteristics.
1) deadline - if purchased in the period to stop contributions or early withdrawal will suffer. General deadline is 7 years to 10 years, but also the five-year. The number of losses, although identified above may only 1% or 2%, but the number may be 10 percentage points. Of course, the closer to deadline, the less the loss.
2) Cost - many project costs. Generally include promotions, investment, planning, financial management, management, maintaining and increasing the fee collection items, and so on.
3) return - usually earn more pay, less Shaozhuan back to the method of allocation annuity annual return. In some cases when the deduction understand cost, and return may be more federal savings bonds lower, and some annuity to provide a minimum return guarantee. But may have to pay more fees.
4) The funds - the traditional annuity Most of the funds should be guaranteed provisions. However costs may be increased.
5) Other - such as seriously ill, disability, or even death, and so when they occur, the traditional annuity there will be special provisions. Of course, costs will increase.
Non-traditional annuity
Whether traditional or non-traditional, annuity in the end it is still the annuity. Still is a priceless, no legal document. Non-traditional annuity is a person with insurance companies from the purchase of executed contracts, in accordance with a contract to Do to act. Still deadline requirements and limitations expired when withdrawals are fixed changes to the scope and methods. In this regard with the traditional annuity is not only too small Datong is abnormal. From another angle future, returns, costs, and the financial security elements, but with the traditional annuity is small with the large abnormalities.
According to the United States Securities and Exchange intermediary Association (NASD) statistics from the non-traditional annuity in the year 2003 is a year of the 7000 complaints. 2004, 2006 and 2005 have more than 10,000. According to the 2006 data are calculated, it is estimated that up to two million. Readers need to understand that the general should not be victims of 100% of complaints to the relevant authorities. If the complaint number of people to 10,000 to two million, the number of victims certainly high. This could see, non-traditional annuity is a category should be avoided as far as possible investments.
As this type annuity marketing practices that the majority of the high-pressure case, order a non-retail investors to buy may not be feeling. In view of this, provide the following five key reference for readers:
1. Salesmen often put forward the annuity tax benefits. This is a one-sided of the story. Because annuity of the cash investment is not tax deductible, the only return on investment can be tax-deferred. To tax-deferred benefits, the purchaser to pay a tax on the price. The price is the annuity accumulated by the return of all future must be ordinary income (Ordinary Income) pay taxes. Understand sacrifice dividend (Dividend) and the long-term value-added (Long Term Capital Gain) should be the maximum tax rate of 15% concession.
2. Salesmen often proposed to have purchased the old annuity contract for the new annuity contract. Coming from the general angle to see if the new annuity adverse good design is the case, this proposal might not be. It must be noted that when you purchased replacement at the equivalent of a new annuity. Further period of the new, virtually shackles year extension period.
3. Interest to purchase the psychological fear of a future marketing lifelong protection (Life Time Payment) annuity. If the annuity contracts with guaranteed lifetime benefits, the cost would certainly increase. Generally increase each year by 0.5 to 2 percent, and so does not.
4. When you retire to consider buying annuity may have been too late. Illustration of this type is wrong. The best investment annuity is the time in the pre-retirement moment. Reason is the purchase of a retirement that is, buy that from the annuity is that the annuity best way for restraint.
5. Annuity It should be a part of estate planning. This is not responsible for the promotion misleading. Of course, in the purchase of the remaining people were killed when the annuity value can be selected from future generations to inherit. But the annuity plot accumulated returns, inheritance need to ordinary income (Ordinary Income) pay taxes. In the heritage tax, but not a fixed and Life (Permanent Term Life) in the future of the operator. Besides, if people choose to buy life extraction method, the death of the annuity value vanished.
Finally, since the purchase annuity is not whether traditional or non-traditional, both is a contract should be avoided. If they truly need to buy a annuity, it should beware of the annuity means personnel promotions, so as not to fall into the trap and not feel.
Topics: STOCK |