Hybrid annuities, according to me, are a blend of a fixed and a variable annuity. They have a guaranteed minimum payout and the potential for their value to increase providing inflation protection and an increasing payout. Does it sound too good to be true?
That was my first thought. "This sounds too good to be true. Be careful!"
Are you wondering what the "catch" is? There are two that are part of every contract:
I am not a financial advisor. Accordingly the opinions and observations presented are for informational purposes only. They do not represent financial or legal advice.
From the annuitants point of few, a good hybrid annuity is one that has the highest guaranteed payout and the lowest fees. Because annuitiesare regarded as insurance products, the fees can be difficult to quantify.
Because the fees and surrender costs are high, the salesperson's commission is also high. Sales agents are trained to sell the insurance company's products and often will pitch the products with the higher commissions. Be careful! Be informed!
Find a financial advisor that consistently keeps his client's welfare first. I have found that an advisor that recommends any product that is, in my opinion, inappropriate for me or someone I know raises the red flag of caution.
Purchasing a hybrid annuity with periodic payments over 10 or 20 years can be a good investment. The periodic payments are a type of forced savings toward a financially secure retirement. This is a "deferred variable annuity with guaranteed benefits".
The periodic premiums are invested in a mutual fund subaccount or tied to the performance of an index such as the S&P 500. The earnings are tax-deferred. That means there is no taxes due on the earnings until they are withdrawn.
The result is there can be income on the earnings that is also tax-deferred. The compounding can achieve significant growth in the value of the annuity. That means more retirement revenue for you.
Insurance companies, as a rule, are financially successful. They can afford to hire the best accountants, actuaries, lawyers and visionaries. These people are often smarter and certainly more familiar with the products that they create than is the purchaser.
We see the end product that evolved over months or years of their efforts. Annuities, therefore, are contracts that are designed with two primary objectives:
Hybrid Annuities are designed with many "bells & whistles". Some will suit your needs. Other amendments will benefit the insurance company.
For example, the policy may limit the contract's earnings power by placing a top limit or "cap" on the earnings. The mutual fund subaccount may earn 15 percent in a given year, but the "cap" may be 9 percent. The difference in earnings goes to the insurance company.
In some policies the guarantees can change under specified conditions listed in the contract. It is important to be aware of your options and those available to the insurance company.
Be aware of the costs involved to terminate the policy. It is a contract between the annuitant and the insurance company. Termination must be reviewed as a possibility as situations do change.
Finally, hybrid annuities can serve as a conservative investment that accumulates assets to be used as income during retirement.
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