Creditor Protection and Other Protection of Fixed Annuities

25 Feb

What Protections Does a Fixed Annuity Offer?

Asset protection is an important consideration when deciding on retirement investments. One investment of particular interest to retirees is the fixed annuity. Annuities are geared to protect you from running out of income while you’re living.

But because a fixed annuity is an insurance product, it has special protections afforded insurance over the years. So, beyond protecting a lifetime income for you let’s, summarize some other protections that a fixed annuity offers you.

While you’re living, a fixed annuity offers you 3 protections. They are protection from

·         Market fluctuations: Because fixed annuities offer guarantee of principal and an interest. You’re protected from the loss in principal and earnings that stock and bond market investments are vulnerable to.

·         Current taxation of annuity earnings: Since fixed annuity earnings are tax-deferred, they’re not reported on your tax forms. This keeps your fixed annuity investment off your tax records until you withdraw money from them. This affords you a privacy feature.

·         Lawsuits:  Annuities are generally[1] not liable to attachment or garnishment in favor of any creditor of the person insured under the contract,. i.e. annuities offer creditor protection

Because your annuity is a contract with an assigned beneficiary, it gives two more protections when you die. They are protection from

·         The probate process: Your fixed annuity investment transfers immediately to your beneficiary. This minimizes costs associated with probating this money, avoids its characteristic delays, and keeps the transfer of this money private – another privacy feature.

·         Contestability: No one may contest your decision as to who will receive your fixed annuity benefits at the time of your death. Assets subject to your will can rightly be contested.

Curious about how much fixed annuities pay? See current rates on the fixed annuity calculator.

Note: Fixed annuities once annuitized cannot be surrendered for value.  Income from deferred annuities is taxed as ordinary income and withdrawals prior to age 59 ½ are subject to a 10% penalty.  Income from annuitization is taxed part as ordinary income and part as return of capital. Any guarantees are based on the claims paying ability of the insurance company. Annuities should be considered long term investments. Annuities are insurance products and subject to insurance related fees and expenses.


[1] These are state-related issues. Check with your state laws; as an example: Florida Statute 222.13 states: “whenever any person residing in the state shall die leaving insurance on his or her life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefit such insurance is designated in the policy.”

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