Annuities
Capital Ingenuity helps clients understand the complexities of annuities

An annuity is a contract between an investor and a life insurance company that allows the investor to invest their funds in a tax-deferred manner and to withdraw their funds later in a variety of different ways. Annuities can have many different options including, but certainly not limited to, the choice to have an annuity grow at a fixed or variable rate, the choice to have the annuity paid over a specific length of time or to receive a stream of payments over the course of the investor's life, and the option to provide payments to a beneficiary in the event of the investor's death.

Annuities are typically known for having higher fees, typically annual, than most other investment products. One reason for this can be because many annuities have a death benefit feature with an associated cost. Another reason is because the life insurance companies that sell annuities have to pay their sales representatives a commission that often ranges between 1-4%. The representative's sales commission is generally paid by the life insurance company offering the annuity rather than directly by the investor.

In addition to higher annual fees, annuities also generally have what is known as a contingent deferred sales charge or (CDSC). This is usually a charge, progressively declining each year, that is imposed only if an investor withdraws their money before a specified "break-even" date.

Despite the high fees, an annuity can have great benefits for the right investor in the right circumstance. At Capital Ingenuity, we help clients understand the complexities associated with annuities and how to determine whether or not their higher fees outweigh the benefits.