The search for the best annuities is complicated by the fact the annuity marketplace is vast, with hundreds of products from which to choose. Narrowing down your choice is no easy task considering there are many different features to understand and compare. It’s no wonder that many people give up trying to find the best annuities or avoid them all together. The task is undeniably daunting, but can be made much easier if you begin, first, by narrowing your search based on the companies that offer them.
The annuity marketplace is always changing as new products are introduced with lower costs, better features and new guarantees. Also, the annuities considered to be the best yesterday, may not be the best today because their past performance is not a good indicator of future performance. But, there is one way to evaluate and compare annuities that will increase your chances of finding the best products, and that is by focusing on the companies that issue them.
Some companies are just better at producing certain products than other companies, and they have developed a track record that is the best indicator of how good their products are compared with others. All life insurance companies have the potential to come out with the new best thing in annuities, but usually it takes time for the market to recognize them. If you need to invest today, you don’t have that kind of time. Instead, focus your efforts on companies that have consistently produced superior annuity products.
Characteristics of Top Annuity Companies
Established annuity provider:
Annuities have been around for a long time. Until the 1980s there were really only a handful of life insurers that issued them. As their popularity exploded in the 1980s and 90s, nearly every life insurer hopped on board the annuity train, some as recently as just the last decade. Companies that have been providing annuities the longest tend to be the best at providing quality products, superior customer services, and more stable returns. What they might lack in innovation (newer annuity providers tend to act more quickly introducing new products and features), they make up for in consistency which most annuity investors want more than anything else.
Solid investment experience:
Annuity investors want competitive returns on their investment. But more than that, they want more stability and predictability for their returns. With fixed annuities, the return is determined by the yield generated by the life insurer on its general account investment portfolio, which is invested in mix of long term, short term, good to superior quality, and government and corporate bonds. Companies with better investment experience are able to manage their portfolio for better and more consistent results, which means that their annuity owners will benefit from higher yields.
With variable annuities, it is important to evaluate the management of the separate investment accounts. While past investment performance should not be an indicator of future performance, you can tell a lot about an investment account by studying the investment managers. How closely has their past performance matched their stated investment objectives and philosophy? How much turnover is there in the management team? Teams that turnover members frequently tend to generate inconsistent returns.
Strong product platform:
While too many choices can create confusion, it is important to have a good selection from which to choose. Annuity products are becoming much more specialized to address the varied needs and objectives of investors. One product might offer a really high rate guarantee with a long surrender period, while another offers a lower rate and less of a guarantee with much more liberal withdrawal provisions. It’s important to know what your priorities, preferences and risk aversions are, and then be able to match them with the most suitable product.
Superior customer service:
The Best of the Best
If there is one place where you should start your evaluation of life insurance companies it is with their financial strength and stability. Annuities are contractual agreements in which the obligations for securing your principal and guaranteeing your returns are only as solid as the ability of the life insurer to fulfill them. All life insurers are held to extremely high standards and requirements for maintaining adequate reserves and capital surpluses. But, some companies do a better job of meeting or exceeding those standards, and consequently, they receive higher ratings from the independent ratings agencies. To give you an idea of how these ratings distinguish one level of financial strength from another, consider the ratings guide from A.M. Best:
A company with an ‘A” rating has demonstrated excellent performance and has a very strong ability to meet its obligations over a long period of time. Compared with:
A company with a “B” rating has an adequate overall performance and can meet its obligations…but it may be vulnerable to unfavorable changes in underwriting or economic conditions.
No one can predict the future, but one thing is certain, and that is there will economic downturns, maybe even another meltdown such as we experienced a few years ago. When the more highly rated companies can come up with annuity products that are just as competitive as a lesser rated company, why would you choose the lower rated company. With an investment that depends on the guarantees and performance of its issuers, it best to stick with the best.