Annuities are complex contracts. It takes time to explore all the options. Don’t rush into anything. Follow these six steps to find the best deal for you.
- Learn about different types of annuities. Choose either term or life annuity.
- Choose the extra options you really need. You can buy options such as a guaranteed benefit period (guaranteed annuity), indexing, or joint-and-last survivor coverage. Don’t forget: everything has a price. Only you can decide if an extra option is worth it.
- Start shopping around. You can buy annuities from a number of sources. Meet with a salesperson from at least three different companies. Buy only from a strong company with a good credit rating. Since an annuity is a long-term contract, you want to make sure the company will be around as long as you. Tip: Many people talk to their life insurance company. You can also ask an annuity broker or your financial adviser to find the best deal for you. If you are converting a Registered Retirement Savings Plan (RRSP) into an annuity, start with the firm that holds your RRSP. Often they will convert it without charging a commission.
- Ask about costs. This includes any commissions, fees, administration charges, and taxes. Find out if there are ways to reduce these costs.
- Choose a beneficiary. This is the person who will get any annuity payments that continue after your death.
- Review all papers carefully before you sign. Read the application and other papers with care before you sign. Do the same with the contract when it arrives. File your contract with your other important legal papers.
Remember: With most annuities, you can’t change your mind later.
Think it through before you buy. It’s also a good idea to talk to a financial adviser, because once you sign, your money is locked in.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.