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Annuities sales on the rise, experts caution, stress importance of understanding a contract

08/30/11

Analysts have explained the recent rise in annuities sales to a new understanding of the nature of the plans, as well as a new perspective on annuities from insurance providers and government agencies alike. Despite the significant hit the market took between 2008 and 2010, several financial groups and insurance providers have invested resources in annuities, which they say when tweaked can provide investors with a more reliable source of retirement income than self-invested funds, according to the Wall Street Journal.

While annuities contracts can be intricate and thereby hard to analyze on a large scale, experts note that many investors who might be investing in the stock market independently are more comfortable with a fixed rate annuity. Fixed rate annuities guarantee interest rates, while a variable annuity gains or falls with the market. Properly invested with the strength and experience of larger investment agency, a variable annuity can produce big gains, and in some cases can offer some of the guarantees of a fixed rate annuity for a fee.

According to the source, the complexity of annuity contracts can be problematic for some investors. While they offer some stability in the form of regular and guaranteed payouts, there can be harsh penalties in the form of fees if an investor is forced to deviate from a plan, and interest rates can drop to lows in the event of a market downturn.

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