Seniors have a number of investment choices available. One option is to purchase an annuity. An annuity is an investment which pays back periodic payments to the investor, either over a fixed period or for life. Annuities may be either immediate, which begin the periodic payments right away, or deferred, which are set to begin the periodic payments at some future date. The owner of the annuity is usually the person who purchased the annuity. Annuities will also name some person as the annuitant, meaning the person whose life will measure how the payments are made. The owner and annuitant may be, but do not have to be, the same person. An annuity will also allow for a beneficiary designation. The beneficiary will receive the death benefit after the death of the annuitant.
Thank you for reading this post, don't forget to subscribe!There is an important distinction between a qualified and a non-qualified annuity. A qualified annuity is purchased using “pre-tax” dollars such as IRA funds. Since these monies were never subject to income tax, all withdrawals will be taxable. A non-qualified annuity is purchased with dollars the owner has already been taxed on, and therefore only the appreciation will be taxed when a withdrawal is made.
Annuities also allow a choice between fixed or variable rates. In a fixed annuity, the insurance company issuing the annuity agrees to pay a stated interest rate for the period agreed. A variable annuity will be pegged to the stock market or to a certain index of the market. Therefore, it may earn more in good times and less in bad times. Usually even variable annuities will have a “floor”, or a minimum guaranteed rate.
Some new statutory protections have been implemented in Florida with regard to annuities. Annuities issued in Florida on or after July 1, 2010, are required to be guaranteed up to the value of $250,000, thereby bringing the protection into line with the FDIC protection for deposit accounts with banks. You should be aware that agents are allowed to discuss this protection only if you-the potential purchaser-inquire about it.
Another consumer-protection change is called the Safeguard our Seniors, codified at Florida Statutes Section 626.9521. This law increases the penalty to a maximum of $75,000 for “twisting” or “churning” annuities. Twisting means talking an investor into changing an annuity from one insurer to another, while churning means convincing an investor to cancel an existing annuity to purchase a new annuity with the same insurer. Both practices are subject to abuse on behalf of salesmen looking for commissions on the “new” annuity.
The legislation also provides that for seniors (age 65 and over), annuities may not contain a surrender charge exceeding 10% of the amount withdrawn. No surrender charge may be imposed after 10 years. In addition, the “free look” period has been extended from 14 days to 21 days. These new rights must be included on a cover sheet informing the purchaser about the free look period, and listing how to contact the agent, the insurer, and the Florida Department of Financial Services if they have a question or wish to cancel the annuity. For extra “teeth”, the department may require an agent to make monetary restitution to a senior who is harmed by the agent’s violation of the insurance code. Hopefully the new protections will curtail some of the abuse which had been noted around the state.