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61 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

The real money maker for insurance companies comes from investing free cash. Most insurance companies have a diversified portfolio of fixed income and equities. Maybe someone can provide a more ...
Bob Baerker's user avatar
  • 76.1k
39 votes

Why buy an annuity contract when you have money to spend?

Annuity contracts are primarily there to insulate you against "mortality risk". Suppose you live longer than average, the contract will keep paying out until you die even if that's more than ...
GS - Apologise to Monica's user avatar
31 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

Why would a life insurance company agree to pay out a nominal amount that is higher than the principal given to them? As mentioned in other answers, the insurance company is assuming that they will ...
illustro's user avatar
  • 831
23 votes

$1.44 million in holdings: Help my non-retired, 80-year-old dad invest it

This is not the answer you were hoping for. I recommend that you stay out of it and let your parents do what they want with their money. They are obviously very good savers and very thrifty with ...
Ben Miller's user avatar
  • 115k
21 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

The insurance company is expecting to earn more money investing the initial buy in amount ($100k) than it pays out. You need to calculate what the equivalent rate of return is for that $100k. Unless ...
FrankRizzo's user avatar
  • 1,201
21 votes

Why buy an annuity contract when you have money to spend?

The point of an annuity contract is that it gives you a guaranteed income for life. Say -- just making up numbers, not saying this particular contract is available anywhere -- that you have $100,000, ...
Jay's user avatar
  • 22.6k
16 votes

Annuity money is not insured?

An annuity is basically an insurance policy in reverse. Either way, they are betting that they can make a decent statistical projection of your future and adjust what you pay them against what they ...
keshlam's user avatar
  • 44.8k
12 votes

Finance Test: How to solve for interest rate? (Annuities)

This is actually a geometric series and r can not be solved for manually (easily) as @base64 says. As one of the formulas on the Wikipedia page I provided a link to just above implies, the sum of the ...
Alper's user avatar
  • 806
11 votes

Why would a life insurance exclude suicide for the first two years of policy duration only?

I believe that the insurance company wants to discourage people from making money by committing suicide. If the insurance company covered suicide for the whole term then a suicidal person with $10,000 ...
Nosrac's user avatar
  • 6,839
9 votes

Second opinion on investments

Yes, fee-only financial advisers/planners exist and in my view are the only reasonable choice. An adviser/planner may have a fiduciary duty to you and also collect commissions by selling you certain ...
Hart CO's user avatar
  • 70.3k
9 votes

Annuity money is not insured?

“Annuity” is used for a number of different types of insurance products. I’ve come to my own conclusion that the only annuity that’s worth considering is an immediate annuity, where you trade a lump ...
JTP - Apologise to Monica's user avatar
9 votes

Why buy an annuity contract when you have money to spend?

While mortality risk is the main reason to buy an annuity (and it has already been covered in the other answers), there is another risk an annuity covers: that you lose your money. This can happen in ...
calofr's user avatar
  • 211
8 votes

Young w/ pension plan: lump sum or annuity?

Using Excel's IRR function and the following cashflows: 10,000 today (age 28) -6,000 annually from age 65 to age 85 (life expectancy) Gives me an IRR of about 5.6% (which means that the 10,000 grows ...
D Stanley's user avatar
  • 133k
8 votes

Second opinion on investments

You mention this: he/she is compensated via sales/commission. then give the example of this: When reviewing suggested investment opportunities such as annuities, whole life insurance, etc., there ...
mhoran_psprep's user avatar
8 votes

Annuity money is not insured?

You are trying to compare annuities with investment products. But they are different. With an investment product you give some of your money to a bank (or similar organization) and they give you it ...
DJClayworth's user avatar
  • 33.2k
7 votes
Accepted

What are the differences between an IRA and an annuity?

An IRA is a type of account. It can hold a variety of investments, including stocks, ETFs, or mutual funds. It has a tax favored status, and rules regarding how much you can invest each year. ...
JTP - Apologise to Monica's user avatar
7 votes
Accepted

Should I withdraw from my annuity now to invest elsewhere?

Move it to a different investment. As you rightly said, annuities are good for the provider, and better for the person making the contract; but not for you. There is no need to pay 10% tax hit - you ...
Aganju's user avatar
  • 37.7k
7 votes

What is the meaning of the Mega-Million's Cash Option - Avoiding lottery's winning taxes

Why is there a difference between the jackpot and the Cash Option - $374 million dollar difference. Taxes aside, suppose you were given a choice of $900 million today or $900 million over 30 years. ...
D Stanley's user avatar
  • 133k
6 votes
Accepted

Is National Pension Scheme(NPS) not a good investment?

The way the question is worded, it is slightly opinion based. Just to point out; Tax benefits - Upto 50000 INR is tax free when invested here. This is actually 200,000 INR under 80C. So if you ...
Dheer's user avatar
  • 57k
6 votes

What is the best source of funding to pay off debt?

Thirty thousand in credit card debt is a "big elephant to eat" so to speak. But you do it by taking a bite at a time. One positive is that you do not want to borrow from your 401K. Doing so is a ...
Pete B.'s user avatar
  • 76.2k
6 votes

Advice for opening an IRA as a newbie

First, a Roth is funded with post tax money. The Roth IRA deposit will not offset any tax obligation you might have. The IRA is not an investment, it's an account with a specific set of tax rules ...
JTP - Apologise to Monica's user avatar
6 votes

Why would a life insurance exclude suicide for the first two years of policy duration only?

As others have mentioned insurance is a highly regulated industry. There is a common rule called a contestability period, typically two years. Typically, if you pass within the contestability period ...
quid's user avatar
  • 49k
6 votes

Is this mixed annuity (part savings and part mutual fund) legitimate?

This sort of investment is legitimate. If it´s a good investment depends on your personal risk-appetite and investment horizon. You basically lower your risk but also lower your average returns ...
Daniel's user avatar
  • 5,316
6 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

Investing like professionals They are investing the money like a university endowment. When investing money for a very long time, there's a "gold standard" for how to go about it. The rule of thumb ...
Harper - Reinstate Monica's user avatar
6 votes

Finance Test: How to solve for interest rate? (Annuities)

You can try guesses for r until you get close enough to zero, i.e. (11000 ((1 + r)^23 - 1))/r - 366000 = 0 Results plotted for r = 0.02, 0.025, 0.03, 0.035, 0.04 with d = 11000 n = 23 s =...
Chris Degnen's user avatar
  • 9,747
6 votes
Accepted

Can you use a tax-free lump sum to buy a second annuity?

The term you're looking for is a "Purchased life annuity". The only official page about them I can find is HMRC's page which is a bit technical and obscure, but you can get some idea about ...
GS - Apologise to Monica's user avatar
5 votes

Young w/ pension plan: lump sum or annuity?

You could look at it in terms of break even. The annuity pays for itself in 20 months (after you retire) and everything after that is profit. However, that is over-simplifying things somewhat. We all ...
CactusCake's user avatar
  • 3,463
5 votes

How would the financial situation be, if a person not only lives quite long, but also has Alzheimer's disease?

There are two issues here. The first is that you may run out of money if you live past the age of 85 and the second is that there's the possibility of Alzheimer's disease in which case you're going ...
Bob Baerker's user avatar
  • 76.1k
5 votes

Can I get life insurance for myself that automatically converts to an inflation-adjusted life annuity for my wife if I die?

This is a logical question, but there seems to be little indication of such a product (an annuity purchased now that will cover the gap between your death and your wife's death). Ideally, it would ...
nanoman's user avatar
  • 29.5k
5 votes

Is there any advantage to buying an annuity through a bank?

If I were to ask you, "Is there any advantage to buying an XYZ TV from Amazon or from WalMart", you'd most likely say "No, only the best price matters". It's the same with ...
Bob Baerker's user avatar
  • 76.1k

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