Did you know that most annuity owners have a strong loyalty and commitment to their investment purchases? Nearly 93% report that they still own their first annuity. But before you look into buying annuities, there is a rich history as to why these insurance packages exist, and there are some key facts you need to know.
So what are annuities, anyways? These are relatively low-risk investment products sold by life insurance companies usually to individuals looking to help manage their income in retirement. For starters, buying annuities requires you to pay the insurance company a lump-sum premium at the beginning of an annuity contract, which will then be paid back to them over time once they reach retirement.
History of annuities: Annuities have only existed a few decades, but the idea of having a stream of income for an individual can be traced back to the Roman Empire.
Annuity, which comes from the Latin word “annua,” means an annual stipend. Later it was associated with a signed contract that ensured annual payments to individuals. Roman jurist Gnaeus Domitius Annius Ulpianus is said to be the first person to deal with annuities and introduce them to the Roman people.
Fastforward to the history of the United States; the earliest record of buying annuities was by the Presbyterian Church in 1720 in order to provide some retirement benefits for ministers and their families. Later, widows and orphans were able to purchase annuities. Interestingly enough, women are now the most non-qualified annuity owners.
Annuities today: Today, there is a stigma surrounding annuities because many upper class citizens tend to purchase these investments in order to receive a large amount of cash, or an annuity lump sum payment, later in life, without having to legally pay taxes. Now, eight out of 10 non-qualified annuity owners earn below $100,000 annually.
Annuity features: Deferred annuities are generally the most popular type of annuity today and was first introduced in the 1970’s. There are two different kinds of these deferred annuities.
- Fixed annuities – This type of annuity offers guaranteed rates of return during the existence of the contract. It is important to understand that these annuities do not have a fixed rate of return during the course of the annuity, but it will instead offer a promised minimum rate.
- Variable annuities – These allow an individual to invest money in an insurance company’s separate accounts, tax-free. Once money is invested, this allows the annuity owner to conduct further tax-deferred investing for retirement.
Criticism: People are generally buying annuities from a financial professional, who collects a commission percentage, from as low as 1 percent to as high as 12 percent. Generally, an individual will not pay this commission rate directly to the financial professional. Instead, the insurance company they work for will pay them up front.