How much to pay?
How much you pay for an annuity depends on how much monthly income you desire, your age when you buy the annuity contract and the time when you want to start receiving benefits. It also depends on how you wish to make your payments (e.g.: in a single sum or in a series of payments). For a single-premium deferred annuity, the smallest amount of purchase payment a company will accept may be $2,500 or more. For a flexible premium retirement annuity, the company may accept payments of less than $100, although more may be required during the first year. You should compare annuity contracts offered by different companies since sales charges, surrender charges, interest rates and benefit payments can vary.
Most companies offer plans with no sales charge. They are called “no-load” plans. However, you should be aware there are many types and amounts of charges that can be associated with the sale of annuity contracts. Companies may refer to these charges by different names. Some annuities are “front loaded,” which means that most of the costs are charged to the policyholder up front at the beginning of the contract. Others are “back loaded,” which means that most of the costs are charged at a later date or at the end of the contract. Still others spread their charges evenly throughout the life of the annuity.
Most annuities allow you to surrender your contract if the contract has not been annuitized (i.e. benefit payments have not yet started). Upon surrender, the contract terminates and you may be required to pay a surrender charge. Early surrender charges typically apply and are imposed during the first five to 15 years from the date the policy is issued. Some companies waive the surrender charge if the interest rate being credited to the contract falls below a specified level. Immediate annuity contracts cannot be surrendered, and there is no surrender value after the contract is annuitized.
The cash surrender value is the contract value less early surrender charges or other market adjustments. Depending on the terms of the annuity contract and the policy’s performance, the cash surrender amount may be less than premiums paid. In addition, there may be tax penalties imposed in connection with cash surrendered policies. Be sure you understand the tax implications and consequences prior to surrendering an annuity contract.