Tread Carefully – A Variable Annuities Overview

Variable Annuities Caveat

In this discussion of variable annuities, I am mostly making an implicit assumption that the annuity is competitively priced. Fees reflect what is needed to support the guarantees provided by the insurance company and to keep the company profitable. But fees are not excessive such that the value to the consumer is eliminated.

It must be noted that not all variable annuities are created equal. As will be discussed, they are complex financial instruments, and that complexity can hide a lack of competitiveness in the pricing of individual products. A variable annuity that is pitched along with a free dinner presentation is possibly not the type of financial product I have in mind. One should tread carefully. Due diligence and a comparison with other annuity options is needed to make sure that the product is priced fairly and will behave in the way that the purchaser understands it to behave. I do not want the “bad” annuities out there to free-ride off of my explanations about the potential positives that can be created by “good” annuities.


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