Indexed Annuities…Don’t Do It…

indexed-annuities-don't

You’ve got to watch out because it is during periods like these that people will try to take advantage of you. They will try to exploit your anger, your frustration and your fears like the email we just got last week. And it went something like this…”Greetings, I would like to introduce to you a product that you should consider adding to your portfolio. One of the great features includes 8.5%”. Wow, who wouldn’t like that? Oh by the way, that 8.5% is not the return promised by the investment. That’s the commission we would earn if we were to sell it to you. The email didn’t even mention what the return would be to our clients because that is an irrelevant fact. You have got an insurance annuity marketer trying to convince us to sell an annuity product to our clients and their attitude is that the only thing we care about is the commission we would earn so that is the only thing they told us.

And unfortunately, the hottest thing in the industry right now is the various forms of annuities, especially of the indexed type and the broker or sales person pushing these products promises you the greatest deal ever. We obviously know that the value of the stock market goes up and down like a yo-yo. We love the ups but can’t handle the downs so he or she proposes something that is so amazing that you can’t believe it could possibly exist but it does. You are going to get the up of the stock market but if the market declines, you won’t lose any money. That’s the promise and it is pushed hard day after day.

Sen. Elizabeth Warren, a controversial figure in Washington did something neat. She probed what is going on with 15 largest sellers of these products in terms of how they are compensating agents. The insurance companies are pushing these highly profitable products through their agents, promising them all sorts of perks like exotic vacations, tickets to high-profile sporting events etc. etc. on top of the humongous commissions they earn. Why? Because this thing that is supposed to be an absolute grand-slam for your wallet is actually a windfall for the agent and the insurance company selling it to you. And that promise of you reaping the benefits of the stock market when it is up is a big fat lie. Because what the insurers do in the contract is that they say that you get the upside of the market but that upside is capped at a much, much lower number. That’s disclosed on page number say 60,000 in mice-type legalese that even a Harvard-trained lawyer can’t decipher. So yes, you get the upside but a much smaller upside. And if you have been a stock market investor, you know that besides the gains in the value of your investments, the other most important aspect of investing are the accrued dividends that you reinvest back. But with these products, you don’t get the dividends. And that is a big, big deal.

Now let’s deal with the 2nd part of the promise which is that you won’t lose money. You won’t lose money only if you use the policy exactly as written and stay in it for more than a decade and sometimes more. If you need access to your money before that, you do not get the downside protection. And then to add salt to that wound, if you decide that this is not the right product for you and you want out, you get hit with massive, gigantic, extreme penalties known as surrender charges. It’s like Hotel California that you can check out but your money can’t leave.

So listen up people…if anyone, anywhere comes to you and tells you that they have this fantastic can’t lose thing that gives you the advantages of the stock market without the disadvantages, hold on to your wallet and never let go.

Be on your guard & Happy Investing.