Question: How important are annuities and what should the bank tell customers who are interested in purchasing them?
Answer:
Annuities are extremely important because they are contracts between customers and banks or insurance companies. They allow customers to make lump-sum payments or a series of payments. The insurer agrees to make periodic payments to the customer which can begin right away or at a later date. Annuities generally offer tax-deferred growth of earnings and may include a death benefit that will pay the customer's beneficiary a guaranteed minimum amount.
Customers should know that when they purchase an annuity, the bank or insurance company invests their money and agrees to pay them back according to the contract terms stated in the annuity. An annuity can be part of a long-term savings plan for retirement or they can allow the customer to immediately receive income. The amount of income that a customer can receive is not tax deferred and it can fluctuate with changes in the financial market.
Annuities, just like mutual funds, are not insured by the bank where they are purchased or by the United States Government. Certain annuities assist customers in setting aside money on a tax-deferred basis. The customer doesn't pay taxes on the income earned by this money until he/she retires.
The following are the most important characteristics of annuities about which customers should be made aware:
The annuity contract spells out the terms of the agreement.
The contract tells the customer whether or not s/he can transfer his/her contract to another bank or insurance company.
Surrender charges or penalties apply when money is withdrawn before a designated amount of time has passed.
Surrender charges can apply from five to ten years or more.
Meeting with a qualified financial planner or qualified tax advisor is the best way to learn more about annuities.
The only way that the bank can ensure that it is current on all aspects of annuities is to provide continuous and ongoing training to its employees. This will enable employees to properly answer any questions that customers may have.
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