How much you pay for an annuity depends on how much monthly
income you want to receive, your age when you buy the annuity contract and the
time when you want to start receiving income. It also depends on how you wish
to make your payments -- in a single sum or in a series of payments. For a
single-premium deferred annuity the smallest amount of purchase payment a
company may accept can be $2,500 to $10,000. For a flexible premium retirement
annuity the company may accept payments of less than $100, although it may
require more in the first year. You should compare annuity contracts offered by
different companies since sales charges, surrender charges, interest rates and
payouts can vary.
Sales and Surrender Charges
Let's take a look at deferred annuities first. Most companies
offer plans that levy no sales charge. They are called "no-load" plans.
Instead, you may be required to pay a surrender charge if you decide not to
keep your contract. Surrender charges typically decrease to zero after five to
10 years, from issue of the contract or from receipt of a particular premium
payment. Some companies waive the surrender charge if the interest rate being
credited to the contract falls below a specified level.
Some companies charge a small annual maintenance fee, perhaps
in years in which no premium payment is made, under a flexible premium
retirement annuity. Such fees, as well as the sales charge (if any) are
deducted from the accumulated contract value. Maintenance and asset management
fees are common under variable annuities.
Immediate annuity contracts cannot be surrendered, and there
is no contract value as such. Accordingly, sales charges, surrender charges and
maintenance fees are not applicable.
Some contracts let you borrow against your accumulated
contract value. You may also be able to use the annuity as collateral for a
bank loan.
With deferred annuities, insurance companies guarantee the
interest that will be credited to your contract value. Every contract contains
a long-term guarantee. The company, typically, credits interest at rates higher
than the guarantee, as its investment results permit, and it may provide
short-term guarantees at rates higher than the long-term guaranteed rate or
rates.
With an immediate annuity, you will be told at the time of
purchase exactly how much money you will get and when you will get it.