There is exactly one (1) negative feature in a Traditional Fixed Annuity or Fixed Indexed Annuity contract.
The SURRENDER charges.
They last 5, 7, 10, 12, or 15 years and DECREASE each and every year. A typical 10 year surrender charge schedule would be (12%, 11%, 10%, 9%, 8%, 7%, 6%, 5%, 4%, 2%, 0%)
These "surrender charge" percentages, while at first glance appear unusually severe or draconian, but in mathematical reality are nothing more than an "interest penalty."
Fixed Annuities are NOT designed for someone to put their money in and take it right back out like some day trader playing the Stock Market like a flea market swap meet.
They are designed for Seniors over the age of 70, primarily for the wealth preservation and transfer of their cash asset DIRECTLY to their beneficiaries or to provide a guaranteed lifetime income stream.
Let's pick on, End of Year 2, in the actual contract below.
Attorneys, stock brokers, bankers and news media would lead a client to believe if the client made an initial premium deposit of $50,924.90 and wanted to "get out" of the contract the on the last day of year two (2) she would lose 11% of her money. They would claim the insurance company would only pay her $45,323.16.
NOT TRUE, the above is an absolute twisted material misrepresentation.
These mathematical Einsteins can even "prove it" on their calculators. They'll take her initial premium of $50,924.90 and subtract 11% and then show the result of $45,323.16.
The only problem with their calculation is the fact it's totally WRONG and doesn't jive with the stated MINIMUM CASH SURRENDER value printed in the policy of $52,340.26 at the end of year two (2).
The correct calculation goes like this:
Premium of $50,924.90 PLUS 10.75% first year interest equals an account value of 56,399.32 PLUS MINIMUM "Guaranteed Interest" of 3% equals an end of year two (2) MINIMUM account value of $58,091.30.
Now let's figure her actual MINIMUM cash surrender value end of year two (2) and see if my calculations match what's printed in the policy.
The first thing to understand is the fact most ALL annuity contracts allow a 10% "free withdrawal provision" per year. With that in mind, the calculation goes like this:
Account value end of year 2 equals $58,091.30, MINUS, the 10% "free withdrawal provision" equals, $52,282.17, that is subject to the withdrawal charge of 11%. $52,282.17 times 11% equals a surrender penalty of $5,751.04.
$58,091.30. (the MINIMUM account value) MINUS $5,751.04 (the correct surrender charge) equals a MINIMUM cash surrender value of $52,340.26. EXACTLY as it's printed in the policy!
So by the end of year two (2) the client could have cashed in her annuity and received back every penny she put into the contract plus some.
Question for Stock Brokers: Would you recommend an 80 year old widow cash out her annuity and risk her money in Stocks or Mutual Funds?
Question for Bankers: Would you recommend she put her funds in bank CDs that on average pay 1% to 2% less than her annuity?
Question for Attorneys: Would it be better for her to exempt her cash asset pursuant to Florida Statute 222.14 and pass the cash asset upon her death DIRECTLY to the named beneficiaries AND avoid Probate Court at the same time or should she pass it under her Last Will and Testament so you can collect your 3% share pursuant to Florida Statute 733.6171???
Fixed Annuity Data Page.Used with permission.
Fixed Annuity Surrender Page.Used with permission.
Posted: Wed Apr 16, 2008 09:16 pm Post Subject:
Amen brother.
Posted: Thu Apr 17, 2008 11:42 am Post Subject:
See THIS link.
Did you know Ben Bernake the chariman of the Federal Reverve has the bulk of his cash asset split between two (2) annuities?
One is a Traditional Fixed Annuity and the other is a Variable Annuity.
Each annuity is valued between $500k to 1 million dollars which means he has a minimum of $1 million and a maximum of $2 million dollars invested with annuities. This represents the bulk of his retirement savings and wealth.
His next closest investment in terms of dollar amount is a Wachovia money market account valued between $50,001 to 100K.
Anyway, I just wanted share some financial trivia with anyone who may read this thread.
If I sold annuities I would first explain the surrender charge schedule to my clients. Then I'd have them sign the brochure at that section and make a copy for myself.
Then I'd ask....
"Setting aside the surrender charge schedule, what's the "other" negative feature of a Traditional Fixed or Fixed Indexed Annuity?"
You'll find they will never be able to give you one.
P.S. Are there any Stock Brokers, Attorneys, Bankers or News Media out there who are up for a good Internet thread war on this HOT topic?
Posted: Fri Apr 18, 2008 09:35 am Post Subject:
THERE ARE NO SURRENDER CHARGES AFTER THE 12TH POLICY YEAR
No charges (at all???) if I surrender at that point of time? Or is it that there are some other charges?
Posted: Fri Apr 18, 2008 11:32 am Post Subject:
There are no surrender charges whatsoever after the 12th policy year.
Period.
End of Story.
See THIS link.
Posted: Fri Apr 18, 2008 04:09 pm Post Subject:
I don't sell annuities although I'm interested in them on a personal basis.
What are the typical returns one might expect on an annuity?
How is the money invested?
What are the minimum and maximum returns available on the market?
Posted: Fri Apr 18, 2008 09:34 pm Post Subject:
What are the typical returns one might expect on an annuity?
With a Fixed Indexed Annuity one could expect to average 6.4% per year over a ten (10) year period with AVERAGE being the operative word.
How is the money invested?
The client's money isn't "invested" anywhere EXCEPT safe and sound with the issuing insurance company like any other FIXED annuity. The trade off is how excess interest is credited based on an outside market index such as the S&P 500.
What are the minimum and maximum returns available on the market?
This depends on the Insurance Company but typically for the monthly point to point annual sum strategy would be between 0% to 24%. This assumes the monthly cap is 2%. The worst thing that happens to a client's money is they get 0% return if the market is flat or goes south.
One must one understand the value of NOT losing money. A 25% loss in one year will require a 47% gain the following year to just break even with a safe investment that's just limping along at 5% per year.
The actual statement below is not typical but it is an example of capturing "some" of the gains of the market without risking one penny of principal. Once interest is credited it can never be lost.
Posted: Sat Apr 19, 2008 03:56 am Post Subject:
I don't sell annuities either. I investigate and assist in the prosecution of those agents who misrepresent the terms and conditions of the annuities and/or life insurance products. Did anyone see Tricks of the Trade on Dateline last week? That was a great show.
Posted: Sat Apr 19, 2008 12:03 pm Post Subject:
Mark I didn't see that show, but I understand video editing.
Hey did Dateline happen to mention that EACH and EVERY life insurance policy and Annuity Contract written has a 10, 20 or 30 day FREE LOOK period that is BOLDLY printed on the very first page of the contract?
I would think THAT fact would be very good information for the annuity insurance buying public.
It says something to the effect: If you are not satisfied with this contract for any reason return it to the agent or to the company for a full refund of your money.
Did they mention that fact?
Well maybe they forgot....kind of like how the surrender charge schedule is "hidden" in BOLD PRINT in an annuity contract on the Policy Data Page, usually the second page of most contracts. Without the aid of the Hubble Telescope I don't know how anyone would find them?
Did I mention the FREE LOOK PERIOD is boldly printed on the very front page cover of ALL annuity contracts.
The FREE LOOK PERIOD starts on the day the client receives the contract in their hands.
Posted: Sat Apr 19, 2008 03:21 pm Post Subject:
Gary, The problem lies in the fact that the stupid consumers believe their agents instead of going through the policy page by page in order to understand the different policy provisions printed in bold. For some idiotic reason though, people actually believe their agents to be loyal, honest, and trustworthy. Isn't that one of the most stupid things you've ever heard?
For example, There were 10.7 million stupid people who believed their MetLife agents and 11.5 million people (who obviously couldn't read either) who had the audacity to actually trust their Prudential agents.
I'm afraid that I'm with you on this point; people should review their policies, maybe take a class and learn all they can about insurance and annuity products before that Free Look Period expires. If the public took the time to learn about the products, they would have absolutely no excuse when their policies failed. You are correct in that people have the right to to return the contract if they are unhappy with it. They should therefore take the time to learn about the product so they would know what to be unhappy with.
They should know that 40% of all agents cannot be trusted and take more responsibility for their policy's success or failure.
Posted: Sun Apr 20, 2008 01:16 am Post Subject:
Wow! A spirited debate with an intelligent person.
I'll play!
They [clients] should know that 40% of all agents cannot be trusted...
Hmmmmm 40% can't be trusted? That's a little bit on the sensational high side. Wouldn't you agree?
I would restate that and say that 40% of all agents can't find their asserisk with both hands. The failure rate is extremely high in the insurance business which may lead to bad agent-to-client judgments the few months just before the agent crashed and burned.
I don't know if this is still true today but I heard that if an agency hired 100 brand new agents on Jan 1st by Dec 31st of that same year they'd have 10 agents left and by Dec 31st of the next year only 2 would still be in the business.
Moving on....
For example, There were 10.7 million stupid people who believed their MetLife agents and 11.5 million people (who obviously couldn't read either) who had the audacity to actually trust their Prudential agents.
Mark, come on now....did you mean to say there was some type of class action lawsuit and 10.7 million MetLife policyowners and 11.5 million Prudential policyowners were eligible for some type of $1.95 settlement?
To claim there are/were 10.7 million and 11.5 million DISATISFIED policyowners is just a little too high to be credible.
Hey, by the way, are you related to Stephen? :wink:
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