Smart Annuity

How To Buy Annuities?

You might want to read the fine prints and have complete understanding of the annuity product you are looking at before you pull the trigger.

Annuities come in many styles, but they share a common trait: The mere mention of them brings worried frowns to financial planners. That's because many of these investment-cum-insurance products come with steep fees and confusing restrictions, detailed in contracts that are inches thick and difficult to understand.

Combine the complexity, fees and restrictions -- some products charge as much as 8% if you pull money out in the first year or two -- with commissions as high as 10% for the agents selling annuities and, some planners say, investors often end up with products that are unsuitable for them.

Still, annuities can hold a rightful place in some investment portfolios -- but choose carefully.

Not all annuities are created equal. Fixed annuities offer a set rate of return. Variable annuities' return is based on the performance of investments in the annuity's portfolio.

Equity-indexed annuities typically offer a blend of both: A minimum fixed rate of return plus a variable rate based on the return of a particular stock index. This gives you a guaranteed return, combined with a chance to capture the index's market gains. But know that your return may be capped at less than the index's performance.