Like any investment, annuities carry risks. For example, if you pass away before the payout period, you miss out on annuity payments. In addition, taking money out of your annuity account may not be easy after you've invested it. Therefore, investors should research the insurance company that is underwriting the annuity. Risks include:
- Missing the income benefit. The idea behind annuities is that you save money now to have an income stream for the rest of your life. You will miss out on that long-term benefit if you suddenly pass away. Some annuities allow you to designate a beneficiary, but they may come with an extra cost.
- Tying up money you may need. Once you've invested your money in an annuity, it can be difficult to access or cash it out if you suddenly need those funds. For example, some immediate annuities take away access to your principal after you have invested it, even though the payments begin right away.
- Insolvent insurance companies. Because an annuity is a long-term investment, you'll want to ensure the company you purchase from is around for the long term. Investors should investigate potential annuity providers' credibility, history, and credit standing.
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