{"id":2015,"date":"2013-11-22T06:30:38","date_gmt":"2013-11-22T14:30:38","guid":{"rendered":"http:\/\/staging-prblog.paladinregistry.com\/blog\/?p=2015"},"modified":"2013-11-22T06:36:46","modified_gmt":"2013-11-22T14:36:46","slug":"5-reasons-why-you-should-be-wary-of-variable-annuities","status":"publish","type":"post","link":"https:\/\/www.paladinregistry.com\/blog\/wall-street\/5-reasons-why-you-should-be-wary-of-variable-annuities\/","title":{"rendered":"5 Reasons Why You Should Be Wary of Variable Annuities"},"content":{"rendered":"

\"variable<\/a>A variable annuity <\/a>is an insurance product sold for investment purposes.\u00a0 The insurance element is the death benefit which is payable only if you die at the time the variable annuity is still in effect.\u00a0\u00a0 To receive the death benefit you have to die- an event many investors do not appreciate!\u00a0 The investment element is the market risk of the annuity owner in selecting the mutual funds offered for investment within the annuity.<\/p>\n

While variable annuities marketed by different insurance companies have different bells and whistles, all variable annuities have certain basic features.\u00a0 Below I describe the five common flaws of which brokers either intentionally fail to inform you or, more commonly, are not acquainted with themselves.<\/p>\n

1.\u00a0 All variable annuities have extremely high costs and commissions which, for the most part, are hidden.\u00a0 The biggest cost is in the form of surrender fees which in reality are the recoupment of the sales commission.\u00a0\u00a0 The broker often takes the commission in a lump sum, closes his file and mines for other potential victims <\/a>but the insurance company that provides the annuity recovers the commission over many years.\u00a0 There are additional charges for the death benefit, the administration of the annuity, and the management of the mutual funds.\u00a0 Cumulative costs make variable annuities an extremely expensive commission driven product. Although the owner of the annuity needs financial advice for many years, most brokers are gone shortly after the product is sold.<\/p>\n

2.\u00a0 In theory, all variable annuities have two phases.\u00a0 First is the accumulation phase when the annuity is supposed to be growing tax deferred.\u00a0 The second phase is when the annuity owner decides to annuitize the variable annuity.\u00a0 In exchange for the investment, the insurance company sends a fixed monthly check for the owner\u2019s life. Annuitization is the only purpose of buying a variable annuity. In reality only less than 5% of variable annuities are ever annuitized.\u00a0 In other words, almost all variable annuities fail. For this reason alone variable annuities are not suitable for the vast majority of people, especially older people.<\/p>\n

3.\u00a0 All promoters talk about the tax deferred characteristics – except those promoters who sell variable annuities to people who already have an IRA account.\u00a0 Those promoters fail to mention the tax deferred status of variable annuities because no tax advantage exists when a variable annuity is funded through an IRA.<\/strong><\/em><\/p>\n

4.\u00a0 Although variable annuities are tax deferred promoters fail to point out that any withdrawals are taxed at income tax rates in lieu of much lower capital tax rates.\u00a0 Studies comparing after-tax returns on investments in securities to variable annuities have shown that there is little or no tax advantage of variable annuities after about 10 years.<\/p>\n

5.\u00a0 The variable annuity industry is virtually unregulated because states consider a variable annuity to be an insurance product and state insurance departments are not equipped to deal with the investment aspect of variable annuities.\u00a0 As a result, after the variable annuity fails, the only remedy left for you is litigation thru FINRA.<\/p>\n

In sum, if you want life insurance talk to a life insurance agent.\u00a0 If you want investment advice talk to a reputable investment advisor.\u00a0 Marrying the two together results in the worst marriage known to the financial world and results in more fiscal divorces than anything I\u2019ve seen in almost 20 years. Ultimately your only recourse may be to recoup a portion of your loss through the services of an attorney who specializes in securities arbitration.<\/p>\n

To learn more about Stuart Berkowitz, visit his site at www.sberkowitz.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"

A variable annuity is an insurance product sold for investment purposes.\u00a0 The insurance element is the death benefit which is payable only if you die at the time the variable annuity is still in effect.\u00a0\u00a0 To receive the death benefit you have to die- an event many investors do not appreciate!\u00a0 The investment element is the market risk of the annuity owner in selecting the mutual funds offered for investment<\/p>\n","protected":false},"author":19,"featured_media":2020,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[],"class_list":["post-2015","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-wall-street"],"yoast_head":"\n5 Reasons Why You Should Be Wary of Variable Annuities<\/title>\n<meta name=\"description\" content=\"While variable annuities marketed by different insurance companies have different bells and whistles, all have 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