Contractual guarantees should be the only consideration with annuities. What will the annuity do contractually? Current company practice or back testing past performance shouldn’t even enter the equation. The only math equation that matters is the contractual guarantees. Anything else is advertising the future and no one knows the future. Have you ever wondered why many annuity insurance companies don’t publish their renewal rates and historical results? Because most annuity companies predictions don’t stand up to their historical results.
What will the annuity contract do come hell or high water? That depends on the financial strength of the insurance company guaranteeing the contractual language. There are several watchdog agencies that rate insurance companies for claims paying ability or financial stability. Many rating services use letter ratings to score a company’s financial strength. But often an A rating with Standard & Poor’s is not the same as an A rating with A.M. Best; and their definitions vary as well. The Comdex Rating is a weighted composite of several rating agencies and although it’s not scientific, it’s a good first step in understanding a company’s financial stability.
You can also order the four-page summary of the company’s balance sheet if you have a savvy CPA or tax attorney that will review it. Once you’ve completed your due diligence on the company’s financials, you’re free to compare the contractual guarantees between annuity policies to best determine the contract suitable for you.
As an example: comparing a guaranteed lifetime annuity contract is simply a ‘bang for the buck’ proposition. If all the companies are rated to your satisfaction and the lifetime guaranteed language is the same, then whoever generates the highest monthly income is the winner. For guaranteed income payments, go to www.cannex.com and review the top ten income companies that fit your “ratings” threshold.