Jonathan, a 45-year-old media executive recently invested in annuities. He made these investments at the behest of his friend, Joe, who also happens to be an investment consultant. However, Jonathan is still doubtful about the wisdom of his decision. He has a thousand doubts regarding the safety of his principal, his insurance company’s capability of honoring its commitment etc.

Do you often find yourself in Jonathan’s shoes? If your answer is yes, then you need to know more about annuities.

Annuities are investment tools issued by insurance companies. They are essentially a financial contract between you and the insurance company. The contract states that you will be required to pay premium/premiums in lieu of an assured income.

Most experts rate annuities as one of the safest investment option, currently, available to investors. One should bear in mind that annuities can be issued only by a qualified legal reserve company. These companies are governed by both state as well as federal laws. The federal law requires that the companies at all times should hold reserves that are equal to the withdrawal value (principal plus interest less early withdrawal fees, if any) of every annuitant’s policy. Some of the state laws also require the maintenance of surplus capital as well as well as contributions to state guaranty funds to provide additional security.

The safety of your savings also depends upon the financial stability of your insurance company. Hence, it is essential to gather knowledge about the financial health of your insurance company. You can check out the ratings given by third party companies like Moody’s, Standard & Poor’s or A.M. Best. This will ensure that your money is in safe hands.

The safety of your savings is also dependent on the kind of annuity chosen by you. For instance, if you opt for a fixed annuity, you are assured of a regular source of income. However, variable annuities do a pose a risk to your savings. Variable annuities invest in stock markets, mutual funds etc which are quite volatile.

Consulting an annuity broker is also recommended if you want to safeguard your investment in annuities. Annuity brokers are independent financial advisors who are well informed about the latest trends and happenings in the annuity market. Many a times, annuity brokers also have insider knowledge about the happenings in a particular insurance company or financial markets. Such knowledge often turns crucial when it comes to making a sound investment. However, insider knowledge often eludes the common investor and hence, it is vital to take advice from annuity brokers. Since they are already aware of the various annuity policies as well insurance companies, they can recommend an appropriate policy, based on your needs and requirements.

Annuity is thus, one of the safest investment options available to a modern investor.