EIA again

[kaneohe]

Took DW to a dinner presentation for her annual vaccination against these
things. Speaker presented a chart showing supposedly actual performance
over a 10 yr or so period ending in 2009. Red line showing S&P500 went up and down and ending up basically even with starting point. Green line showing EIA stairstepped up and ended up ? ###? (some number that I didn't document but significantly higher than red line).

What to conclude?
1) Numbers are false.
2) Numbers are selective/hence misleading
3) Number are real. Environment has been favorable for EIA and unfavorable for S&P500.

Supposedly you can buy 5-10 yr EIAs and get out at the end of the term with
gains preserved. Gains supposedly are net of the caps/participation rates/etc. I know EIAs have the rep for being complex/sneaky investments but how to systematically find the flaws in this presentation?

 

[rescueme]

Buy!

The presenter knows more than you (can you do .PPT?)

 

[MasterBlaster]

What do you need them for. Do your own EIA. Take a look at Brewers fine post here:

http://www.early-retirement.org/forums/f28/how-to-replicate-an-equity-indexed-annuity-eia-34656.html

The other thing is... Don't they make you annuitize at their crappy rate to get the promised sum. In reality they are promising much less than it appears.

 

[dgoldenz]

What do you need them for. Do your own EIA. Take a look at Brewers fine post here:

http://www.early-retirement.org/forums/f28/how-to-replicate-an-equity-indexed-annuity-eia-34656.html

The other thing is... Don't they make you annuitize at their crappy rate to get the promised sum. In reality they are promising much less than it appears.

No. Some of the old annuities did that and it gave the whole industry a bad rap because the bonus recapture periods were longer than the surrender periods. Some annuities will make you annuitize to get the bonus if there is one, others will not. If buying an EIA, know the requirements and if you do not want to annuitize, buy a "walk-away" annuity where you can take the lump sum after the surrender period and do as you please.

Took DW to a dinner presentation for her annual vaccination against these
things. Speaker presented a chart showing supposedly actual performance
over a 10 yr or so period ending in 2009. Red line showing S&P500 went up and down and ending up basically even with starting point. Green line showing EIA stairstepped up and ended up ? ###? (some number that I didn't document but significantly higher than red line).

What to conclude?
1) Numbers are false.
2) Numbers are selective/hence misleading
3) Number are real. Environment has been favorable for EIA and unfavorable for S&P500.

Supposedly you can buy 5-10 yr EIAs and get out at the end of the term with
gains preserved. Gains supposedly are net of the caps/participation rates/etc. I know EIAs have the rep for being complex/sneaky investments but how to systematically find the flaws in this presentation?

EIA's lock in the gains and will never go below the previous year's balance unless you have some sort of rider that is charged against the account. Once the gain is locked in, any negative returns in the index will only generate a 0% return for the year with the stepped-up principle preserved.

 

[kaneohe]

The other thing is... Don't they make you annuitize at their crappy rate to get the promised sum. In reality they are promising much less than it appears.

The claim was that you could just take the $$$ and run when the term ended.
Good question to double check, tho.

Thanks for the link. Will have to take a 2nd look.

 

[dgoldenz]

The claim was that you could just take the $$$ and run when the term ended.
Good question to double check, tho.

Thanks for the link. Will have to take a 2nd look.

For most EIA's, yes. After the surrender period, you can walk away with the lump sum. Some annuities are designed for lifetime income and may require annuitization to keep all of the features. Most of those have gone the way of the do-do though. Make sure you understand what you're getting, read the brochure thoroughly and read the sample contract.

 

[brewer12345]

Better yet, run away.

 

[REWahoo]

The claim was that you could just take the $$$ and run when the term ended.

As brewer said, take your money and run before the term ever starts...

 

[73ss454]

So, you think the insurance co and the brokers are there to help you. Sheeeesh!

 

[dgoldenz]

So, you think the insurance co and the brokers are there to help you. Sheeeesh!

Doesn't your car and homeowner's insurance broker help you? Just asking.

 

[brewer12345]

Doesn't your car and homeowner's insurance broker help you? Just asking.

The peope at GEICO are somewhat helpful, but I suspect that they generally do not steer me to optimal coverage for the price.

 

[dgoldenz]

The peope at GEICO are somewhat helpful, but I suspect that they generally do not steer me to optimal coverage for the price.

Time to find a new agent. Hopefully you don't buy your car insurance directly from the company.

 

[haha]

So, you think the insurance co and the brokers are there to help you. Sheeeesh!

I think this is a red herring. We recently heard from a new MD who has not even completed his residency about how he wishes to get out, how he wants to play golf midweek like "everyone else". (How little he apparently knows about everyone else!)

But if you were sick would you refuse service from him knowing that he works mostly (or perhaps even entirely) for money? If you pay a guy to cut your yard, is it any less cut for him being paid?

Most people work mostly for money. That doesn't mean that one's well being cannot be enhanced by trading with a person who works for money.

Ha

 

[73ss454]

Doesn't your car and homeowner's insurance broker help you? Just asking.

No I really don't think they do. These two insurances are something most people need and with car ins it's the law in most states. No one NEEDS this other crap. It's just sold to people who aren't paying attention. Let's call a spade a spade.

 

[73ss454]

I think this is a red herring. We recently heard from a new MD who has not even completed his residency about how he wishes to get out, how he wants to play golf midweek like "everyone else". (How little he apparently knows about everyone else!)

But if you were sick would you refuse service from him knowing that he works mostly (or perhaps even entirely) for money? If you pay a guy to cut your yard, is it any less cut for him being paid?

Most people work mostly for money. That doesn't mean that one's well being cannot be enhanced by trading with a person who works for money.

Ha

Maybe, everyone needs medical attention from time to time. I don't believe anyone NEEDS this other stuff and I believe it's just sold to unsuspecting people.

 

[brewer12345]

I think this is a red herring. We recently heard from a new MD who has not even completed his residency about how he wishes to get out, how he wants to play golf midweek like "everyone else". (How little he apparently knows about everyone else!)

But if you were sick would you refuse service from him knowing that he works mostly (or perhaps even entirely) for money? If you pay a guy to cut your yard, is it any less cut for him being paid?

Most people work mostly for money. That doesn't mean that one's well being cannot be enhanced by trading with a person who works for money.

Ha

The problem is not that they get paid. The problem is a misalignment of incentives combined with the fact that insurance agents don't legally have to act as fiduciaries toward their clients.

 

[DoingHomework]

I think this is a red herring. We recently heard from a new MD who has not even completed his residency about how he wishes to get out, how he wants to play golf midweek like "everyone else". (How little he apparently knows about everyone else!)

But if you were sick would you refuse service from him knowing that he works mostly (or perhaps even entirely) for money? If you pay a guy to cut your yard, is it any less cut for him being paid?

Most people work mostly for money. That doesn't mean that one's well being cannot be enhanced by trading with a person who works for money.

Ha

I don't care if my Dr works just to pay off his student loans and for greens fees. But I don't want him to get paid more to upsell me additional therapies I don't need.

My insurance agent should help me optimize my purchase to fit my needs. He should not use fear to sell me coverage I do not need. There is a not-so-fine line between explaining what coverage is available and selling people coverage they do not need

 

[73ss454]

Before I was smart enough to pay attention I used AGEdwards as my broker and bought 3 Whole Life Polices from various brokers and ins companies. None of these things worked out to well for me. (heh) If there is something I can get done without using brokers or insurance companies I will do so.

All 3 whole life policies ended up in litigation and were sold by lying and using deceptive tactics.

 

[chemist]

One thing I have picked up on, is the comparisons often ignore the dividends on the S&P 500. In other words, they plot total return on the annuity vs only the price of the S&P 500 w/o dividends being considered let alone reinvested.

 

[dgoldenz]

My insurance agent should help me optimize my purchase to fit my needs. He should not use fear to sell me coverage I do not need. There is a not-so-fine line between explaining what coverage is available and selling people coverage they do not need

Which is exactly what a good agent will do....of course, there are plenty of scummy ones out there, so I understand your point and the stereotype. The number of people who have problems with insurance because they bought it on their own and didn't understand it is far greater than the amount that bought with agents. It would be a lot harder to get a claim paid fighting with the insurance company by yourself than having your State Farm/Allstate/etc/etc agent going to bat for you.

The problem is not that they get paid. The problem is a misalignment of incentives combined with the fact that insurance agents don't legally have to act as fiduciaries toward their clients.

Hopefully that was a joke....otherwise there'd be a lot of lawyers out of business.

 

[kaneohe]

One thing I have picked up on, is the comparisons often ignore the dividends on the S&P 500. In other words, they plot total return on the annuity vs only the price of the S&P 500 w/o dividends being considered let alone reinvested.

Thank you for pointing that out. That's a useful thing to be looking for in the analysis.

 

[saluki9]

It's just sold to people who aren't paying attention. Let's call a spade a spade.

There are plenty of well educated consumers who buy financial products like EIAs, whole life, etc because the products fills a specific need.

 

[Bikerdude]

One thing I have picked up on, is the comparisons often ignore the dividends on the S&P 500. In other words, they plot total return on the annuity vs only the price of the S&P 500 w/o dividends being considered let alone reinvested.

In addition, the period selected was one of the worst 10 yr periods for the S&P500.

 

[dgoldenz]

In addition, the period selected was one of the worst 10 yr periods for the S&P500.

Every EIA illustration I've seen will either show the past 30 years, 40 years, or have a section that shows the best 10-year period, worst 10-year period, and last 10 years.

 

[73ss454]

There are plenty of well educated consumers who buy financial products like EIAs, whole life, etc because the products fills a specific need.

When you say plenty does that mean about 1% of the people who actually buy/get stuck with this stuff. I would say that most people are sold these products for commission sake and not to fill a need. There is always the exception.