Isnare Free Articles
Authors Contents [Add OpenSearch]
Distribute your articles to more than 6,000+ sites and 40,000+ email group publisher subscribers for as low as $2 / article...
Index  Article Directory  Finances
Embed this Article  
Robert D. Cavanaugh, CLU

Robert D. Cavanaugh, CLU x 27 articles

Liked the article? Consider buying me a beer!

Most Recent Videos Most Recent Videos

Deferred annuities possess characteristics found nowhere else. They play an important part in seniors' portfolios.

Seniors hold billions of dollars in deferred annuities. However, my experience is that the average person knows little about the unique advantages of deferred annuities, much less the options they have during the holding period.

When you mention the term, "annuity", it typically conjures up thoughts of getting a small check in the mail every month from some insurance company. It is viewed as an income.

The vast majority, however, of annuities are of the "deferred annuity" variety. They are accounts designed to grow money over a period of time in a safe environment. Over 90% of deferred annuities are never "annuitized", that is, converted to that monthly check in the mail.

So let's take a look at some of the attributes of annuities and, in the process, clear up many misunderstandings about this vehicle.

Tax Deferred Earnings

Deferred annuities provide "triple compound interest." There is interest on principal, interest on interest and interest on the taxes you would have paid on an investment in a non-tax deferred environment.

For example, 6% which is taxable is equivalent to an 8% non-taxed return assuming a combined federal and state tax bracket of 25%.


While deferred annuities are not FDIC insured, like a CD with a bank, they are backed by the generally billions of dollars of the insurance company's assets. No big risks here.

A Competitive Interest Rate

Insurance companies normally set the interest rate for a deferred annuity contract annually. You will find that it is usually one to two points above CD rates. So not only do you get a higher rate but the interest is tax-deferred, unlike a CD where you pay taxes on the interest each year.

Some deferred annuities offer a rate that is guaranteed for a number of years, such as five. If you think interest rates will fall, you can lock in today's rate.

Minimum Interest Guarantee

When you get to the end of your annuity time frame, if your annuity has not given you at least a minimum of (generally) 3% interest per year, then the insurance company will apply their minimum guaranteed rate. Nothing to get excited about, but at least you know that you can't lose money and there is a minimum interest rate that is guaranteed no matter what.

No Sales Charges

When you move money into a deferred annuity, 100% of the money goes to work for you from day one. There are no sales charges subtracted from your initial deposit.

No Annual Administration Fees

Some places to park money, like mutual funds, may have fees attached to the administration of the fund. Not so with deferred annuities.

Withdrawal Privileges

This is a source of major misunderstanding. Many people do not realize that their money is not as tied up as they think; there are a number of ways to access funds without surrender charge penalties.

1. First, there is the 10% annual free withdrawal privilege. Each year you can take out up to 10% of your account value free of any penalties.

2. If you ever need to go into a nursing home, most insurance companies will allow you to take out whatever you need with no penalty.

3. If your doctor diagnoses you with a terminal illness, you typically can take out any amount penalty free.

4. You can convert all, or a portion, to a guaranteed income. This can be for your life, your life plus another (i.e. husband and wife) or for a set number of years.

5. There are a handful of new products on the market which will set you up with a pay out at a guaranteed interest rate for the rest of your life, but also allow you to retain control of the principal. In other words, the annuity is never "annuitized."

The interest rate is typically a function of your age. For example, if you are 65, the interest rate is 5%; 70 would be 6%; 75 pays 7%.

Free of Probate

This feature will vary by state, but in those states in which this feature is applied, an annuity is not included as a probate asset. Hence it is free of any probate fees or any delays in passing the funds to your beneficiaries. The normal requirement, however, is that the annuity must have a named beneficiary.

Free From Creditors

Again, this will vary from state to state. If you live in a state where this applies, this is added peace of mind that the money in your deferred annuity is safe in the event of a financial reversal.

Surrender Charges

Folks who object to deferred annuities usually bring up the fact that there are surrender charges that make getting their hands on the money costly. To a certain degree this is true. In order for the insurance company to go on the hook for the guarantees in the contract, they need to put some strings on accessing the funds.

However, these surrender charges decrease over time. Eventually they disappear altogether. In addition, after you have held your contract for a certain number of years (five is typical), you can take all or some of the money out over a five (sometimes ten) year period with no surrender charges.

The bottom line is that the surrender charge issue can be circumvented in a number of instances. Remember, deferred annuities are longer term scenarios. You certainly wouldn't want to put emergency fund money or money you are going to use to buy a new car in two years into a deferred annuity contract to begin with.

So there you have it. Ten features of a deferred annuity, which will add to your understanding of this product.

Rate this article:
Robert D. Cavanaugh, CLU is a 36-year financial and estate planning veteran and author of the free newsletter, "The Estate Preservation Advisor". For cutting-edge, easy-to-understand financial planning resources and techniques to increase your income, reduce taxes and preserve your estate and to claim the free video, "How to Sell Your Life Insurance Policy for More than the Cash Value", go to
Important NoticeDISCLAIMER: All information, content, and data in this article are sole opinions and/or findings of the individual user or organization that registered and submitted this article at without any fee. The article is strictly for educational or entertainment purposes only and should not be used in any way, implemented or applied without consultation from a professional. We at do not, in anyway, contribute or include our own findings, facts and opinions in any articles presented in this site. Publishing this article does not constitute's support or sponsorship for this article. is an article publishing service. Please read our Terms of Service for more information.

Most Recent Articles

Kitchen Decoration Process

An Article by Hasan Sarker in Home Management

6 hours ago

The kitchen is not a simple stack of cabinets, hoods, stoves and electrical appliances, but is combined with the whole kitchen environment to create a pleasant and enjoyable living space. But the face of the kitchen decoration is a lot of people can start, just hydropower transformation of this one problem can be stumped a lot of heroes, so a clear and practical kitchen renovation Raiders is even more important...

How to Find Best Contractor Payroll Management Solution in Australia

An Article by Tristan T in Business Management

9 hours ago

Now-a-day, every organization has its own unique set of head - Basic salary, Allowances, and Reimbursements. In addition to these there are sometimes variable earnings, and deductions in payroll. Additionally, there could be out of payroll payments that need to be paid once in a while. Then there is the concept of benefits which could be in or out of payroll too...

How Audio Books Can Help You in Your Workout

An Article by Jawed Smith in Computers and Technology

1 day ago

There's no doubt about it. Audio books have made life a lot much easier. For those people who want to exercise to remain in excellent shape, audio books can assist us to accomplish this with less tension. Normally people think audio books are very expensive or very monotonous. That's not actually true...

RevenueHits Review Earne – Make $800 Per Month

An Article by Sabrina Akter in Travel

1 day ago

earneRefresh: There's a mid year promo that you should exploit at the present time. In the event that you join BEFORE July fifteenth 2017 and begin acquiring with Revenuehits you will get an additional reward. Here are the terms:• A new Publisher who will – join to RevenueHits, utilize the stage for a time of 1 month and reach no less than 1000 USD in Revenues – will be remunerated with 100 USD Sign-Up Bonus;• A new Publisher who will – join to RevenueHits...

Omega De Ville Prestige Co-Axial Chronometer Automatic Power Reserve 424. Men’s Watch| a Classic Returns in a Modern Disguise

An Article by Jason Ca in Entertainment

2 days ago

The bottom line:The Omega De Ville Prestige Co-Axial Chronometer Automatic Power Reserve 424. 20. 37. 20. 02. 001 Men’s Watch mixes olden looks to a new design and offers a lot to enjoy. Its noticeable quirkiness is way apart from what you usually find in the mainstream brands and is free from the unnecessary conservatism...

What Are the Benefits of Aluminium Shutters?

An Article by JOSEPH ZAMMIT in Home Management

2 days ago

Aluminium is a strong and durable material that is ideally suited to external applications. It does not warp or become brittle like wood, it does not rust like iron and is perfectly suited to the harsh Australian weather conditions. It therefore follows that aluminium shutters are the best window covering option for your home...

2017 NS0-191 Dumps NCSE NS0-191 Exam Questions NetApp NS0-191 Practice Exam

An Article by Delia Green in Computers and Technology

2 days ago

NS0-191 exam is a new turning point in the IT industry. Killtest is a site that comprehensively understands the Network Appliance NS0-191 exam. Killtest is recognized as the leader of a professional certification exam, it provides the most comprehensive Network Appliance certification standard NS0-191 Dumps NCSE NS0-191 Exam Questions NetApp NS0-191 Practice Exam...

Why Quality Content is Important For Your SEO

An Article by Kate Cage in Internet

2 days ago

Search engine optimization is an important part of your business content marketing strategy. It influences your position in online search results, allows you to generate more traffic, and consequently helps you generate more leads. In other words, SEO helps your business grow. But there is a catch, you need to create quality content in order to implement SEO in the best way possible...

Healthy Employee, Productive Employee

An Article by Arati Shah in Wellness, Fitness and Diet

2 days ago

The growth of an organisation is determined by the productivity of their employees. The productivity is achieved when the employee is focused, healthy and has a positive competitive work environment. A healthy human state leads to low absenteeism and better work quality and output. Employee productivity has a direct tie to company wellbeing and the bottom line...

Lesser Known Facts About Kanwar Yatra

An Article by Devendar Agarwal in Religion

2 days ago

Facts about Kanwar YatraSawan is here. Sawan is synonymous with Lord Shiva and his worshippers, also known as Kanwariyas, they travel to places like Haridwar, Allahabad, Gaumukh, and Gangotri in Uttarakhan and Sultanganj in Bihar to get Gangajal, i. e. the holy water from the river Ganaga, to offer to Lord Shiva...

Modern Home Architecture & Decor Trends of 2017

An Article by Bimal Hegde in Real Estate

2 days ago

If you plan to buy a property in Bangalore, you surely want to keep yourself updated about the latest trends in architecture and home decor. There are plenty of 2/3bhk flats in Bangalore available for sale, but you would want to buy one that is trendy, contemporary and well designed. So, what are the residential architecture and decor trends for the year 2017...

Developing Mobile Apps 70-357 Braindump

An Article by Kruis Barry in Education

2 days ago

You can choose Passcert Developing Mobile Apps 70-357 braindump for your 70-357 Certification Exam. Passcert Developing Mobile Apps 70-357 braindump are prepared by IT Professionals. We are strongly confident that you will pass your 70-357 exam the first time. With our complete Developing Mobile Apps 70-357 braindump, you will minimize your Microsoft cost and be ready to pass your 70-357 exam on Your First Try...

H12-321 HCNP-WLAN-CEWA Exam Practice Test

An Article by Kruis Barry in Education

2 days ago

If you feel that you purchase Passcert H12-321 HCNP-WLAN-CEWA exam practice test, and use it to prepare for the exam is an adventure, then the whole of life is an adventure. Gone the furthest person is who are willing to do it and willing to take risks. Not to mention that Passcert H12-321 HCNP-WLAN-CEWA exam practice test are many candidates proved in practice...

Why Marketing Your Book is Important

An Article by Author John Fleming in Marketing

2 days ago

There are between 600,000 and 1,000,000 books published every year in the US alone. On average, they sell less than 250 copies each. With these given data on book publishing, what will you do to make you and your book stand-out. The answer is marketing. With the fast-paced book competition around the world, you need to engage yourself in the hands of the powerful marketing...

Ski and Snowboard Carriers Perfect Solution For Transporting Your Snow Gear

An Article by Tony Bulic in Travel

3 days ago

With projections and unique shapes, one cannot deny that skis, snow boards and allied snow gear just don’t pack up well. Some are undeniably long, some gear is squat and wide or bulky. Trying to fit them all into the meagre storage space of any car is going to be a challenge – they simply occupy too much space...

MLA Style Citation:
CLU, Cavanaugh, D. Robert "Ten Things The Average Person Does Not Know About Annuities." Ten Things The Average Person Does Not Know About Annuities. 05 Mar. 2008 23 Jul. 2017 <>.
APA Style Citation:
CLU, Cavanaugh, D. Robert (2008, March 05). Ten Things The Average Person Does Not Know About Annuities. Retrieved July 23, 2017, from
Chicago Style Citation:
CLU, Cavanaugh, D. Robert "Ten Things The Average Person Does Not Know About Annuities." Ten Things The Average Person Does Not Know About Annuities
Copy and paste the code below to embed this article:
<a class="embedly-card" href="">Ten Things The Average Person Does Not Know About Annuities</a> <script>!function(a){var b="embedly-platform",c="script";if(!a.getElementById(b)){ var d=a.createElement(c);,d.src=("https:"===document.location.protocol?"https":"http")+"://"; var e=document.getElementsByTagName(c)[0];e.parentNode.insertBefore(d,e)}}(document);</script>