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For some reason, “annuity” is the curse word of the financial industry.  Maybe some misleading sales practices have helped earn this bad reputation, or maybe it’s the constant “I Hate Annuities” ads that blanket all platforms.  It’s unfortunate, because many people that might need an annuity transfer of risk strategy have probably opted not to learn more about the unique benefits annuities offer because of this unearned negative stigma.

Annuities are contracts that are issued by a life insurance company, and the annuity category offers 2 unique benefits that separate them from all other financial products.  These proprietary items does not mean that everyone needs to own an annuity, but it should make you think twice the next time you hear a financial pundit or advisor say to never buy one.

Lifetime Income

The monopoly that only annuities have is the guarantee of lifetime income.  No other financial product on the planet can contractually guarantee a stream of income that you can’t outlive.  The only 2 strategies that also provide a lifetime income are your Social Security payments and a pension (if you are so fortunate).  Those are both annuity type structures as well.

Annuities were first introduced in the Roman Times as a lifetime pension type payment to the dutiful Roman soldiers and their families.  The Latin word “annua” means payment, and is the origin of today’s word “annuity.”  That first Roman income annuity is what we now call a Single Premium Immediate Annuity (SPIA).

The 4 primary types of annuities that provide a contractual lifetime income stream are Single Premium Immediate Annuities (SPIAs), Deferred Income Annuities (DIAs), Qualified Longevity Annuity Contracts (QLACs), and Income Riders attached to some deferred annuities.  All income guaranteed pricing is primarily based on your life expectancy at the time you start the payments, with interest rates playing a secondary pricing role.

There is no ROI (Return on Investment) calculation until you die.  Up until that point, it’s a pure transfer of risk strategy.  Policies can be structured to cover a one life (“Single Life”) or two lives (“Joint Life”), and annuity carriers actively bid for your business.  Income annuities are commodity products that need to be shopped with all carriers in order to find the highest contractual guarantee for your specific situation.  Shopping for annuities is like shopping for a plane ticket.  You are looking for the best contractual deal and the best price.

So lifetime income is the first unique benefit that only annuities offer.

Free Test Drive

When most people buy a car, they go to the lot and test drive it before signing the paperwork.  The same can be said for buying a house.  You want to know what you are getting before making the commitment.

Annuities are the only financial product that allows you to actually own the policy, and then be able to get your money back without question.  You can actually test drive the annuity.  It’s called the annuity “free look” period.  Here’s how it works.

Regardless of the annuity type you purchase, a policy will be delivered after the contract is issued.  From the time you receive that contract, you have a specific period of time to review the policy and get your money back in full.  Each state has a different free look policy, and this site shows each specific state’s free look time period.

During the free look time period, the policy is in force.  You can call the carrier directly to ask any questions or verify any sales pitch promises to see if they are true.  If you find out that you had been misled during the sales process or things have changed since you made the buying can get your money back.  No questions asked.  You just have to sign a specific form and fax or scan it back to the issuing carrier within that free look time period to get a full refund.  You don’t have to interact with the selling agent at all.  You can just deal with the annuity company.  No reasons or explanations for the "free look" refund are required.  It's a simple, no hassle, pro-consumer process.

In my opinion, this is one of the best things the annuity industry has ever done.  Allowing the consumer to “test drive” the annuity after it has been issued should make Ralph Nader weep with joy.  It’s so pro-consumer, you wonder why the annuity industry hasn’t pounded this unique benefit into the heads of every Baby Boomer in America.  Talk about a a missed marketing opportunity!

Shop With Confidence

Annuities, regardless of type, are commodity products that should be shopped with all carriers to find the highest contractual guarantee.  Now that you know you can “test drive” the policy, you can shop with confidence knowing that you can always get your money back during the “free look” period.

If you need income for the rest of your life and are growing a little weary of the stock market beating up your retirement accounts, it might be time to add an annuity lifetime income guarantee to your Social Security payments.  It's at least worth considering.