Annuity FAQs


Q.  Does an Equity Indexed Annuity decrease in value because of ups and down in the stock market? 

A.  No.  Regardless of market ups and downs you can never lose money due to market fluctuation.


Q.  What is a surrender charge?

A.  A "surrender charge" is a type of sales charge you must pay if you withdraw money from an annuity during the "surrender period."  Most annuities allow a 10% free withdrawal each year without incurring a surrender charge.  


Q.  Can I assign a beneficiary to my annuity policy?

A.  Yes.


Q.  Is the growth in an annuity taxable income in the year in which it’s made?

A.  No.  Annuities grow on a tax deferred basis which means you don’t have to pay income tax on the growth until you begin withdrawals.  Additionally, annuities are not subject to long or short term capital gains.


Q.  Is there a 10% IRS penalty for annuity withdrawals prior to age 59½?

A.  Generally speaking, yes.  Consult with your tax advisor for specifics, as the IRS allows certain hardship withdrawals.


Q.  What is a participation rate?

A.  The participation rate is the percentage of the increase in the index that will be credited to an equity indexed annuity account value.  For example:  if the participation rate is 80% and the index earns 10% for the year, the annuity would be credited with an 8% return.


Q.  Do annuities avoid probate?

A.  Generally speaking, yes.  Since beneficiaries are named to annuity contracts they may avoid probate. 


Q.  Can I exchange one annuity contract for another without incurring a tax liability?

A.  Generally speaking, yes.  A 1035 exchange is a tax free exchange between annuity contracts.  Consult with your tax advisor or financial professional.

Q.  Can the beneficiary of an annuity or life insurance policy be changed?

A.  Yes, at the owner’s discretion.


Q.  Why are ratings of an insurance company important?

A.  An insurance company’s rating is based on their financial strength.  Financial strength is generally defined by the company’s claims paying ability, quality of investment portfolio, and the ability of its management to ensure operations are strong year after year.


Life Insurance FAQ’s


Q. What is the difference between whole life insurance and term life insurance?

 A.  Whole life insurance is permanent and generally cannot be cancelled by the insurance company.  Term life is pure death benefit for a predetermined period of time, which then becomes cancelable by the insurance company.


Q.  Can I convert my term policy into whole life?

A.  Yes, if the contract allows.


Q.  I have a life insurance policy; can I increase the face value of it?

A.  Most companies require a new application and new underwriting, mainly in part because health conditions, ages, and premiums per thousand dollars of insurance change.  Refer to your policy for specific details.


Q.  Is life insurance a necessity?

A.  If you have financial responsibilities that need to be addressed upon your death, we would highly recommend that you look into it.


Q.  Is a medical exam necessary when applying for life insurance?

A.  Yes, most of the time.


Q.  Can I reinstate a lapsed life insurance policy?

A.  Yes. However, each insurance company has different rules and procedures for reinstatement.   Evidence of insurability may or may not be required.


Q.  Can I still qualify for life insurance if I have health complications?

A.  Yes, each company has a medical and underwriting staff that evaluates each application individually.  It’s not uncommon for life insurance companies to issue policies to applicants that have a history of heart disease, certain forms of cancer, and other types of health conditions.  Approval is always at the underwriter’s discretion.