How annuities really work
When an annuity policy is issued
the company sets the first year interest rate. This rate
is guaranteed for the first policy year and we refer to
it as the current rate. The base rate is
that interest rate which the company projects it will
pay in the second year and thereafter. This base rate
is also referred to as the "renewal rate" is not
guaranteed. In fact some companies pay a "renewal rates"
which are less than the originally projected base
rate.
Note the the difference between
the current rate and the base rate is
referred to as the bonus rate.
We use the Current Rate
(for the first year) and the Base Rate (for each
year thereafter) in our formula to calculate the
projected "Account Values."
- Surrender Charges, Withdrawal
Charges
The surrender charges last for a period years and we
calculate the projected "Account Value" for the number
of years the surrender charges exist. For example; if
the surrender charge of the policy lasts seven years,
we calculated the projected "Account Value" for only
seven year. The reason is the after the surrender
charge expires the interest rate is dropped to the
contractual guaranteed minimum and the policy values
are usually transfer to another annuity. To continue
projecting the accumulated value beyond this point is
meaningless.
Most annuities allow you to
withdrawn interest from your annuity without penalty.
Some annuities allow you to withdraw interest with out
paying a penalty at the end of the policy year or
after 30 days, then as earned.
All most all annuities allow you
to withdraw up to 10% of the account value before a
surrender charge or withdrawal charge is applied.
YOU must know how the Withdrawal or Surrender
Charges apply before buying an annuity policy to save
yourself unnecessary expenses.
How are they taxed? click
here
for free quote
|