The constant and never ending question that always seems to come up is whether or not variable annuities are worth the gamble. And it’s a fair and legitimate question to ask.
First and foremost, when people think of annuities, they think of safety. Variable annuities are anything but safe. They take on the risk of the market due to their underlying assets being in mutual funds. Of course, they may be placed in money market accounts or more conservative funds but what would the point of that be. It’s hard to think of them outperforming anything when they are in conservative investments seeing that there are typically high expenses to being in one.
The next problem with variable annuities is that they are loaded with features that may be too expensive for what they are worth. These days, there are so many bells and whistles to choose from with your variable annuity. Many of these features aren’t all what they are cracked up to be (although you might never know that) and they just add to the expense of the investment. The fact of the matter is that they are not always straight forward and can be very hard to invest into properly even with the guidance of an annuity agent.
And finally, one thing that needs to be noted is that insurance companies tout their features but sometimes they are so confusing that even the agents selling them don’t know the intricate details. It is important to know that a feature that seems good may not be all that it is cracked up to be. It may look good in the ‘customer brochure’ but then be a totally different story in the fine print. The ‘living benefit’ is one of those features.
The bottom line is, one must be very cautious when it comes to variable annuities. It is not a good idea to take them for face value since there is so much more than meets the eye. Furthermore, it wouldn’t be wise for you to rely on the words of your agent solely. It would be more prudent to do your own homework and to discover for yourself whether or not a variable annuity is truly worth the gamble.
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