How To Buy Annuities at Minimum Cost and Minimum Risk

Although annuities are issued by insurance companies, they may be purchased through banks, insurance agents, or stockbrokers. The "load" (commission) you will pay to the middle-man will vary from 3% to 8% of your investment. This commission obviously reduces the return you can get on your investment.

Some insurance companies sell "no-load" (no commission) annuities directly to the investor. With the no-load annuity, all of your money goes to work for you earning interest or dividends. There is considerable variation in the fees that you will pay for a given annuity, as well in the quality of the product. Thus, it is important to compare costs and quality before buying an annuity.

TIP: Before checking out the product, it is important to make sure that the insurance company offering the product is financially sound. Because annuity investments are not federally guaranteed, the soundness of the insurance company is the only thing you have to bank on. Consult services such as A.M. Best, Moody's, Standard & Poor's, and Duff & Phelps to find out how the insurer is rated. Choose only companies that are top-rated, after familiarizing yourself with the service's rating system.

The way you should go about comparing annuity contracts varies with the type of annuity:

Immediate annuities: Compare the settlement options. For each $1,000 invested, how much of a monthly payout will you get? Be sure to consider any penalties and charges.

Deferred annuities: Compare the rate, the length of the guarantee period, and a five-year history of rates paid on the contract. It's important to consider all three of these factors, and not to be swayed by high interest rates alone.

Variable annuities: Check out the past performance of the funds involved.

More information on annuities, visit annuities.

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