Learn the Truth About Hybrid Annuities
Dick and Eric take some time to explain pros & cons in this video about hybrid annuities, what a hybrid annuity is and what it is not as part of their seven part video series on how to choose the best annuity. The biggest complaint or flaw seems to come from all of the confusion surrounding the complex nature of certain annuities. When the term hybrid annuities was coined it was just simply a way to describe an annuity that now had the desirable characteristics of other annuity types combined into one. Now it seems that anything is referred to as a hybrid annuity so it is important to ask for clarification and also compare hybrid annuity rates. Enjoy this video and also make sure you view video seven on Hybrid Annuity Income Riders.
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What are Hybrid Annuities?
Hybrid annuities, also referred to as hybrid income annuities, are essentially a type of insurance contract allowing the account owner to allocate his or her assets into a fixed annuity with a market benchmark component, having an income rider or riders that give substantial present or future guarantees to secure a variety of retirement objectives.
These annuities refer to a combination of several unique aspects of various types of annuities that have been combined. Technically, a hybrid annuity is a fixed indexed annuity with an innovative new generation income rider attached to it.
Some hybrid annuities can help to resolve the concerns with regard to other needs in addition to asset growth and retirement income––such as long-term care funding or wealth transfer to heirs––while still providing one with a secure income. These annuities are considered by many to be the answer to satisfying a combination of retirement objectives combined into one solution, thus having the potential to solve several issues in retirement.
Obtaining a hybrid annuity essentially works the same way that you choose any annuity, in that making an allocation begins by choosing the hybrid annuity after comparing rates, features and ratings that meet key retirement objectives and then funding the hybrid annuity contract with a licensed agent as the final step.
With some hybrids, if funds are required for needs such as long-term care, with certain hybrid annuities, owners can have access to withdrawals for that purpose by way of an accelerated cash account payout or a guaranteed increased income payout, in some cases for as long as it is needed. However, if they do not need the funds for that purpose, they will receive their lifetime guaranteed retirement income just as it was structured or use the annuity for moderate growth as a secure asset foundation to balance their portfolio.
Fact or Fiction…Know the Truth
As hybrid annuities are not an actual specific annuity (hybrid actually describes the combination of benefits offered by various types of different annuities combined into one), there are many misconceptions with regard to how these annuities work as well as about how the benefits are received. Therefore, it is important to fully understand what fact is and what fiction is when it comes to hybrid annuities or hybrid income annuities.
Fact or Fiction? — If retirees use their annuity account value, they will not be eligible to receive any long-term care benefit dollars. — Fiction!
The truth is that on certain hybrid types––even if retirees use all of the account value in their hybrid annuity for guaranteed retirement income needs––if they opted for the additional long-term care or income rider, then they will still be able to receive a certain dollar amount for a long-term care need as well. This essentially can be an answer that gives them the best of both worlds guaranteed income and a long-term care payout that’s guaranteed.
Fact or Fiction? — If one dies before he or she has used his or her hybrid annuity funds, there will be nothing left for his or her heirs. — Fiction!
Unlike some other types of immediate annuities, with a hybrid annuity, should one pass away prior to using up his or her annuities cash value, his or her heirs typically will receive all of the remaining dollars with no penalties or surrender charges.
This can be extremely comforting for those who want their children or heirs to receive a substantial inheritance, yet also need the benefit of guaranteed retirement income and funds for potential long-term care expenses.
Fact or Fiction? — Because of the market indexing component, hybrid annuities are risky. — Fiction!
The facts are that hybrid index annuities offer interest crediting that is linked to the upside growth of popular stock indexes, without the downside risks of loss in those markets. In addition, index annuities are insured and guaranteed assets, and can be used as part of a predictable and comprehensive financial plan.
They are also excellent retirement and estate planning financial tools due to the fact that they are built with contractual guarantees. In fact, these types of annuities are quite suitable for the funds that should not be put at risk of market loss––such as allocations directed to a safe retirement account––since the principal is guaranteed against stock market losses.
Fact or Fiction? — Hybrid annuities have high fees like variable annuities. — Fiction!
No fee is one of the great advantages of hybrid annuities other than the income rider fee of typically less than 1 percent (which is optional) hybrid annuities have no fees or in rare cases have a very low fee known as a spread. A spread simply means that if there is no gain there is no fee.
Fact or Fiction? — Hybrid annuities protect principal and lock in earnings. — Fact!
Never going backward with principal or earnings is a benefit that makes hybrid annuities so popular. This is because the chassis for a hybrid is actually a fixed annuity with a market indexing option also known as a fixed index annuity.
Fact or Fiction? — Hybrid annuities give the full upside of a popular market index with no downside risk — Fiction!
Unfortunately overzealous insurance salespeople have misrepresented hybrid annuities as getting the full upside of the market. It is true however that there is no downside risk. Hybrid annuities have caps, averaging spreads and participation rates that limit upside gain in return for no downside risk. Ironically this does allow hybrid and other fixed annuities with indexing options to do better than the market indices they are indexed too when market conditions are volatile, flat or down over a period of several years.
Hybrid Annuity Features
Some common retirement concerns that are frequently articulated are as follows:
- The need for reliable income now or in the future
- Maintain financial independence
- To know that cash will never run out
- Guarantee income for a surviving spouse
- Guarantee income and still leave money to children
- Avoid long-term care asset spend-down
- Have an inflation hedge without market risk
Before Committing ANY Retirement Savings to Hybrid Annuities...
"Make Decisions based on income, ratings, and key facts - Compare Hybrids!"Our helpful visitor survey finds:
- Most Hybrid annuity owners with higher rated Hybrid annuities are pleased.
- A portion of Hybrid annuity owners did not adequately understand their purchase.
- Those who chose the lesser rated insurers were less confident with their decision.
- Some purchasers believe their agent left-out key facts and did not inform them fully.
- Few owners, after purchasing, felt Hybrid annuities were not in their best interest.
- Those who structured Hybrid annuities for maximum income with reduced or no annual fees were more likely to recommend this type of annuity to others.
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