A number of companies offer a variety of fixed annuities in Connecticut which often offer higher interest payouts than a standard bank CD. The term “fixed annuity” is very generic so I will describe the different types in this post. The type of fixed annuity that will work best for you depends entirely on your situation and what you are trying to accomplish. Lets move on to a description of each type.
Single Premium Immediate Annuity (SPIA)- SPIA’s are the oldest type of annuity and the way they work is very simple. You give the company a lump sum of money and they pay an income stream to you for a set amount of time. (5 years, 10 years, lifetime, etc…) The lifetime option can not be outlived but you are also giving up the lump sum of money in order to have the income stream. There are now Return of Premium SPIA’s which pay a bit lower income but insure that the any remaining principal will be paid out in the event of premature death.
Fixed or MYGA Annuity- This is the traditional fixed annuity. The MYGA stands for “Multiple Year Guaranteed Annuity”. This product is also refereed to as a “CD Like Annuity” at times. The plan offers a fixed interest rate at determined number of years. The rate can not change during the fixed years listed. So if you had a 5 year MYGA guaranteed at 3.4%, it means you will get 3.4% for 5 years. The rate is compounded every year. At the end of the 5 years, you are then free to take your money and go. If you take the money out prior to the 5 year term, you will pay surrender penalties on the product. (You are allowed to take 10% a year without penalty during the 5 year term.
Overall- MYGA’s really are a better way to a better fixed interest rate than that being offered by a bank CD. The consumer needs to be careful of a few things however. The first is to find out how long the surrender charges last on the product. You should match them up with the fixed interest rate period. If the interest rate on the fixed annuity is guaranteed for 7 years, make sure that the product has a 7 year surrender charge. You would not want to have a surrender charge that is longer than the rate guarantee. The second important point is to make sure that the rate you see is not just a first year bonus rate. If you see something like “5 year annuity with 4.5% first year rate” you need to inquire as this is probably really a 3.5% or 2.5% product with a bonus on the first year only.
Fixed or MYGA Annuity with Income rider- This is the same product listed above but some companies will allow you to add an income rider to the policy. The rider is a way that income can be elected on a lifetime basis in any future year. This allows the client to know exactly how much income can be taken for life. Income riders can be very useful but you need to know all the details. You will also want to know if the rider carries an annual fee.
Fixed Indexed Annuity- (FIA) Unlike the MYGA, the Fixed Indexed Annuity uses market based crediting methods to determine interest. The crediting accounts follow the S & P and various other market indexes to determine how much interest will be credited. Since it is a fixed product there can not be a negative year. The worse the product can credit is 0% gain in a down market. To make up for this protection, the insurance company will cap the upside gain allowed. There are a huge number of fixed indexed products that credit interest in a number of different ways. Income riders, accelerated nursing home riders and death benefit riders can be added to a number of the products offered. It is not uncommon for a bonus to be credited to the initial investment. They range from 2% to 12% depending on the product.
Overall- Fixed Indexed Annuities have many uses but it is important to pick the right FIA for its intended purpose. There are also products that have very long surrender periods so it is important to know how long you may be locking your money up for.
How Crowe and Associates can help you pick the correct annuity: Crowe and Associates is based in Brookfield, Connecticut. The agency is independent and able to work with any annuity company as a result. We are A rated with the BBB and help clients find the right annuity type and company to meet their needs. Once we determine the type of annuity needed, we will then shop to see which company is providing the best rates and terms. Feel free to request a quote through this site or call our office at 203-567-6235. You will be contact by someone from Crowe and Associates only. We DO NOT sell your information to other brokers or companies.