We have discussed before that Variable Annuity has the highest commission and highest expense. Now the the third dirty secret:
3. One of the most confusing products offered
Income and death benefits of variable annuities vary widely from company to company. Many of these benefits come with caveats to how and when the income can be taken.
Some offer guarantees of return if held for a certain time period (10 years or more is common). Income percentages vary with the age at which income is taken. The longer you wait, the higher the percentage. Many companies offer a “step-up” in contract value on each contract anniversary. This comes in the form of a set percentage (5% to 7%) or can be based on the contract value, whichever is greater. Some eliminate this step-up if income is being taken.
Brokers are being aggressively courted by various insurance company salespeople to sell their particular product. Every salesperson is trying to convince the broker that their product is best. The nuances of each product are hard to keep track of. Because of the complexity of these products, brokers often choose a product based on what the salesperson has told them. They often don’t understand the intricacies of how the income guarantees and death benefits actually work.
Conclusion
I’ve written about this before, and will repeat it again here.
3. One of the most confusing products offered
Income and death benefits of variable annuities vary widely from company to company. Many of these benefits come with caveats to how and when the income can be taken.
Some offer guarantees of return if held for a certain time period (10 years or more is common). Income percentages vary with the age at which income is taken. The longer you wait, the higher the percentage. Many companies offer a “step-up” in contract value on each contract anniversary. This comes in the form of a set percentage (5% to 7%) or can be based on the contract value, whichever is greater. Some eliminate this step-up if income is being taken.
Brokers are being aggressively courted by various insurance company salespeople to sell their particular product. Every salesperson is trying to convince the broker that their product is best. The nuances of each product are hard to keep track of. Because of the complexity of these products, brokers often choose a product based on what the salesperson has told them. They often don’t understand the intricacies of how the income guarantees and death benefits actually work.
Conclusion
I’ve written about this before, and will repeat it again here.
- If it sounds too good to be true, it probably is.
- Never invest in something you don’t understand.
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