When learning about Church insurance and other administrative responsibility, one term that will most likely pop up is annuity. Some ministry leaders might not be well versed in these financial aspects, which makes finding the right one a challenging process. Fortunately, our experts at Integrity Now Insurance, have put together a guide to finding the right annuity for you.
First and foremost, let’s begin with understanding what annuity is. This is essentially a contract that’s signed between an insurance company and you, that helps provide you with a guaranteed income for a lifetime. You have to make a payment (or small payments) to the company, and then they grow this money and send it back to you after you retire.
Choosing annuities can be complex as they are available in different sizes across the market. But it all boils down to an insurance contract between you and the annuity company. As a ministry leader, an annuity is important as this helps keep your Church running for years. It acts like a financial lifeline when there’s no income being generated.
There are two basic types of annuities, i.e., fixed annuity and variable annuity. The former is like a savings account with your insurance company. This is a risk-free investment, in which you’ll earn a fixed interest rate on your money, so you can expect the same payout every year. These annuities aren’t tied to the stock market.
On the other hand, variable annuities work differently. These are a combination of life insurance, mutual funds, and tax-deferred retirement savings plans. Your retirement payments tend to depend on the performance of your chosen mutual funds. This is why they’re termed variable annuity. You put money (lump-sum payment or series) that’s already taxed and the account will grow tax-deferred.
We typically do not recommend a variable annuity as they are packed full of high fees and are not considered a safe investment. Within the fixed annuity community, we often recommend a fixed indexed annuity. These products are tied to the stock market; however, they only participate in the stock market gains and not the stock market losses. Fixed Indexed Annuities have seen gains into the 20% range; however, this should not be viewed as the norm.
The first thing to keep in mind is the purpose of this annuity. If you’re already retired or coming close, then a fixed annuity or a fixed indexed annuity will be an ideal choice. A variable annuity can work best if you’re building up for your retirement at an early age. However, you could be better served with a mutual fund over the variable annuity due to a variable annuities high fees.
For 90 percent or more of our clients a fixed indexed annuity is their best option. This is because they allow our clients to participate in stock market gains but not their losses. We have found with the fixed indexed annuity to be a great option as it is a safe investment and the fees with this product are low.
The next thing to consider is whether you need the money immediately. The timeline of when you will need access to your money is important discussion to have with your insurance agent. Annuities are similar to your IRA or 401K, once you put your money into them; they are considered a long-term investment.
If you remove too much of your money too early, you could be required to pay an early withdrawal penalty. We recommend that you pick an annuity that allows you to withdrawal up to 10% annually without a penalty in the event of an emergency. We also recommend having sufficient emergency funds in your checking or savings account.
Every type of annuity has its benefits and drawbacks, this is why it’s important to seek advice from an experienced and expert insurance agent.
Click here to Learn about the Top 12 things you need to know about Fixed Annuities before you purchase one of them.
Whether you need to learn about an annuity or other insurance topics, Integrity Now Insurance Brokers is one of the top church property insurance companies in California. We provide church insurance coverage at competitive prices. Contact us today to take care of all your insurance needs.