Annuities FAQs

What are annuities?

Annuities are accounts that can provide income for the rest of the owner’s life, protected against market losses. An annuity may be used for immediate income or deferred for later use after 401(k) or IRA money has run out.

What are the benefits of an annuity?

  • - Annuities grow tax-deferred

  • - Annuities provide guaranteed income not found with typical mutual funds

  • - Annuities don’t have annual contribution limits

  • - Annuities allow you to catch up on retirement savings

  • - Annuity payments can be structured to last an entire lifetime

  • - Some annuities offer death benefits to a beneficiary

Can an annuity be transferred into a whole life insurance policy?

No, an annuity cannot be transferred to a whole life insurance policy. Annuity payouts can be used, after tax, to pay whole life insurance premiums, but an annuity cannot be transferred tax-free to a life insurance policy.

Can a whole life insurance policy be transferred into an annuity?

The cash value of a whole life insurance policy can be used to purchase an annuity, but a direct life-to-annuity exchange depends on the insurance carrier and will likely cause a forfeiture of the death benefit of the policyholder’s whole life insurance policy.

In the event a policyholder is able to transfer a life insurance policy to an annuity, the amount of the premiums paid toward the whole life insurance policy will be tax-free upon withdrawal from an annuity, and the policyholder won’t be taxed for transferring the cash value of the whole life insurance policy to an annuity, per the Section 1035 Exchange tax provision. For help setting up an annuity, speak with John Stewart.

How soon can money be withdrawn from an annuity?

Annuity withdrawals may begin starting at age 59 ½. Withdrawing before age 59 ½ will subject the annuity owner to an early withdrawal penalty. An annuity can be structured for immediate income or it can be deferred for later use. The decision of when to withdraw money from an annuity is up to the owner. Speak with John Stewart to customize an annuity that fits your needs.

What happens when an annuity owner dies?

Like life insurance, the money in an annuity may be transferred to a beneficiary upon the death of the owner, either in a lump sum or in a stream of payments.

How much does an annuity cost?

The cost of an annuity depends upon the type of annuity purchased, the payout period, and the amount of income the owner wishes to receive from their annuity, among other factors. For help purchasing the right annuity for your unique needs a goals, schedule a complimentary consultation with John Stewart.

What are the different types of Annuities?

Below are the 5 most common types of annuities?

Fixed annuity. A simple, straightforward option that’s similar to a CD. You’re guaranteed a fixed interest rate on your investment that could last anywhere between a year and the full length of your guarantee period. There are two types of fixed annuities, traditional fixed and Multi-Year Guarantee Annuity (MYGA).

Variable annuity. A tax-deferred investment product with the highest upside. You can participate in investments including stocks, bonds, and mutual funds. However, you may lose your principal.

Fixed indexed annuity (FIA). You’re able to earn interest from market exposure. But, if the market tanks, the interest rate is guaranteed to never be less than zero

Single Premium Immediate annuity (SPIA). With this type, you exchange a lump sum payment into a series of payments. These are guaranteed for the specified period of the contract. Income checks start right away.

Deferred annuity. An easy-to-understand annuity where you pay a lump sum of money upfront today for recurring payments at a later date.

Payment options on annuities.

  • - Life Annuity

  • - Life with Cash Payment

  • - Life with Term Certain

  • - Joint and Survivor

  • - Fixed Period

  • - Lump Sum

Want a deeper dive in Annuities? Go here!

What is a Market Value Adjustment (MVA)?

An annuity is supported by long-term investments made by the issuing life insurance company. When surrenders or large withdrawals are requested by annuity owners, the company is subject to investment risk associated with the current interest-rate environment and the market value of the company’s bond portfolio. By aligning the value of your surrender/withdrawal with the current market conditions, the MVA enables the company to offset the investment risk while maintaining competitive annuity rates.

Understanding an Annuity’s Market Value Adjustment (MVA)

The MVA comes into play only if you surrender your annuity or take a withdrawal in excess of the annual free withdrawal amount before the end of the surrender-charge period. The MVA may have either a positive or a negative effect on your surrender/withdrawal amount. The MVA does not apply in some states. The MVA is an adjustment to the value of your annuity surrender or withdrawal amount due to the interest-rate environment at the time of your surrender/withdrawal in comparison to interest rates when you originally purchased the annuity. The MVA may increase or decrease the value of your surrender/withdrawal amount.

The Purpose of the MVA?

An annuity is supported by long-term investments made by the issuing life insurance company. When surrenders or large withdrawals are requested by annuity owners, the company is subject to investment risk associated with the current interest-rate environment and the market value of the company’s bond portfolio. By aligning the value of your surrender/withdrawal with the current market conditions, the MVA enables the company to offset the investment risk while maintaining competitive annuity rates.

Limits to the MVA?

The extent to which the MVA can impact your contract value is limited. On the downside, the MVA can’t lower the cash surrender value below your guaranteed minimum value. On the upside, the MVA can’t increase your cash surrender value above your accumulation value.

Summary?

The MVA feature allows Insurance Companies the ability to offer competitive rates on annuity offerings. As an annuity owner, you should be fully informed of the impact the MVA may have should you decide to surrender your contract before the end of the surrender-charge period, or take a withdrawal in excess of the free-withdrawal amounts; if you do neither, the MVA will have no effect on your annuity.