Oct
24
2008
More Answers to Your Financial-Crisis Questions – AIG ANNUITIES
Author: Byron UdellThis Q&A is from a recent column that Kiplinger Personal Finance reporter, Kim Lankford, wrote. I wanted to share it with you as I thought it was good information.
Question: “I read your Don’t Rush to Ditch Your AIG Policy column, where you mentioned that people might have to pay a surrender charge if they switch out of their annuities. But if my annuity doesn’t have a surrender charge, is there any downside to rolling over the money to another company?”
Answer: You’re right to look at the surrender charge first. Depending on the particular annuity, you might have to pay a fee of up to 10% of your account balance if you switch to another company’s annuity.
But even if you aren’t subject to a surrender charge — if the annuity never had one or if you’ve held it long enough that the charge has disappeared — there still could be a downside to switching companies.
No matter what type of annuity you have, it’s essential to read the contract carefully before making any changes. Some variable annuities, for example, offer guaranteed minimum income benefits — promising returns of 3% or more no matter how your investments perform — which can be particularly valuable in a year like this. But to qualify for this benefit, you may need to take the money in a lifetime income stream rather than a lump sum. If you move the annuity to another insurer, you could lose the minimum benefits that you’ve accrued, leaving you instead with the actual balance of the investments. In a tumultuous market like this, your actual account balance may be much lower than the minimum guarantees, so you could lose a lot of money by switching to a new annuity.
The specific rules can vary from company to company — and even within one insurer (AIG offers many types of annuities). Review your contract carefully and ask a lot of questions before making a change. And also look closely at any new annuity, too. It could have different investments, fees and guarantees, which may not be as good as the one you currently have. If you do switch, make sure that you roll the money directly to the new annuity rather than taking it yourself, so you won’t have to pay any taxes on the exchange.
For more information about the safety of AIG’s annuities and life insurance policies, see What the AIG Bailout Means for You, and the section in Your Financial-Crisis Questions Answered about AIG annuities.
