San Francisco Quote Blog: Annuities
Annuities: Might be attractive soon
As we debate, on the national stage, what needs to happen for our economy to grow beyond its current problems there could be one positive outcome; Interest Rates Rising! I know, this sounds crazy, but there are a few places where interest rates rising can offer some salvation.
When Alan Greenspan lowered interest rates continually beginning in 2000, there was a multitude of side effects with one of them being the internal rate Life Insurance companies paid on their investments. This effect had a shockwave through the industry. Life Insurance policies which were both Universal and Whole LIfe began to get weaker internal rates of return, which caused some policies to suffer. Also, new annuity contracts (and those ending their terms) were given very low rates as well. I was fortunate in 2001 to get my Aunt into an annuity contract paying 6%. This was an incredible rate at the time, which unfortunately the insurance company tried to not honor. However, a contract is a contract. The last time anyone saw something close to 6%, without the rate being a teaser rate, was early 2000's.
My suggestion: Take a look at any insurance contract you have entered over the past five years. With a very, very low interest rate environment comes very, very low payouts by the insurance companies. Even check out Universal and Whole Life policies which were issued over the past four years. You might be surprised to see the differences today.
** As an aside, if you had to borrow money over this same period unless you were living off the annuity you probably benefited more from lower rates **
Posted on July 7, 2008
