Variable Annuity, Has anyone purchased and why?

[mathjak107]

From 1994 through 2008 there were a dozen interstate annuity carriers that received cash from state guaranty funds. Every state guaranty fund covered at least $100,000 of cash value and there were only three failed carriers that did not provide all of the account value for all of their customers.

i believe the ones that didn't pay off everything were london pacific life and golden state mutual but i can't remember the 3rd.

 

[nun]

As brewer12345 points out, there are guarantees layered into variable annuities such as income stream for life and a death benefit of original investment, that are appealing.
And yes there is risk that the Annuity provider could fail, but in 2008 we saw several 'solid' companies fail....
As finance dude points out, we need to research and make the best personal choices we can, for our personal financial situations. Thank you finance dude for that list, it gives me a few more points to consider. Much appreciated.

GM earlier on you mentioned that you have a pension and SS, so I'm curious why you are so focused on the guaranteed income stream of the variable annuity as you already have a couple of fixed income sources that are more reliable.

If the guarantee of income in later life is the most important thing to you look into a single premium immediate annuity or a deferred income annuity. Those are products that are a lot more transparent than a variable annuity, will actually produced a fixed income, and you will probably get a slightly more positive response from the board.

 

[pb4uski]

From 1994 through 2008 there were a dozen interstate annuity carriers that received cash from state guaranty funds. Every state guaranty fund covered at least $100,000 of cash value and there were only three failed carriers that did not provide all of the account value for all of their customers.

i believe the ones that didn't pay off everything were london pacific life and golden state mutual but i can't remember the 3rd.

Interesting info. Where did you get it?

My point was that insurance failures were modest during the recent financial crisis. The banks - a whole different story.

 

[mathjak107]

It has been know for years. I guess there must be info on them on line.

 

[REWahoo]

IOW, no source available...

 

[2B]

It has been know for years. I guess there must be info on them on line.

And maybe not. I know someone whose father owned an annuity in a company that failed somewhere in the 1990s. He described how long and painful the process was to get the annuity restarted via the state guarantee fund. He eventually got his annuity restarted.

Way back when it was listed on the list of failures and I had an article on two people indicted for things that caused the failure. Now I can't find anything on it. The company's old name is now back in use and any search makes it look like the company has never had a problem.

Here's a list of failures since 2008. It's not always obvious which ones involve which insurance products.

Weiss Ratings

Failures do happen. Ratings of companies can go from great to insolvent over a decade or more.

 

[brewer12345]

Which solid insurance companies failed in 2008? None of note that recall. And don't mention AIG
because it is well established that the problem there was not the regulated insurance companies.

Insurers do not have to default to reduce the value of the guarantee. I would not be real happy to be counting on a Hartford annuity guarantee at themoment.

 

[Grammymissy]

Nun, currently the only income stream is the pension, since I am 51 and husband is 56, husband wants to take his ss at 62, while I am waiting to 67 is current plan. Obtaining another income stream to kick in when my husband is 65 or so is what we are considering. We would love to fund our retirement with streams and not have to worry about our other investments until needed. Since we are planning to travel extensively, having that money feeding the travel account regularly would lighten the load of worries. We also like the return of premium death benefit, that will assist the surviving spouse with getting settled in alone, help pay for assistance as needed.

 

[nun]

Nun, currently the only income stream is the pension, since I am 51 and husband is 56, husband wants to take his ss at 62, while I am waiting to 67 is current plan. Obtaining another income stream to kick in when my husband is 65 or so is what we are considering. We would love to fund our retirement with streams and not have to worry about our other investments until needed. Since we are planning to travel extensively, having that money feeding the travel account regularly would lighten the load of worries. We also like the return of premium death benefit, that will assist the surviving spouse with getting settled in alone, help pay for assistance as needed.

Then a variable annuity (VA) doesn't seem ideal. Most people on here would advise you to invest the money in an appropriate asset allocation and take your income stream from that, but I can see that you want some "insurance". Therefore, I'd either buy a deferred income annuity (DIA) with whatever survivor benefit you want and have it start paying out when your husband is 65 or just wait until then and buy a single premium immediate annuity (SPIA). Linking your income stream to the performance of the stock market doesn't seem to be what you want and any potential returns will be drastically reduced by fees and expenses.

The folks on here know what they are talking about so avoid the variable annuity because you basically give a high fraction of your returns to the insurance company in fees. If you truly want stable income look at DIAs and SPIAs.

 

[Grammymissy]

Nun, thank you for your response and your taking the time to explain some options for us. I will take some time and research the options you have noted. Much appreciated!

 

[Huston55]

Interesting info. Where did you get it?

My point was that insurance failures were modest during the recent financial crisis. The banks - a whole different story.

It has been know for years. I guess there must be info on them on line.

IOW, no source available...

Google. The link, and the referenced quote, are below.

Safety - Keeping Your Principal Safe

Annuity guaranteed cash values up to state guaranty funds limits - usually $100,000 - have been protected when an insurer fails. Is an annuity as safe as an FDIC insured bank account? No, because federally insured is by definition superior to a state guaranty. But the real question is not whether FDIC is safe; it is whether money inside a fixed annuity is also safe. From 1994 through 2008 there were 94 bank failures. CD deposits within federal deposit insurance limits were protected; the same did not hold true for account balances over the insurance limits in many of these banks and not every uninsured account was made whole.

During the same period customers of a little over a dozen interstate carriers that offered annuities received cash from state guarantee funds. Every state guaranty fund covered at least $100,000 of cash value in the event of carrier insolvency.

 

[gcgang]

There is an exception to almost every rule.
A friend bought a VA several years ago, in a retirement account, and it seems to be working. In a retirement account, because the objective was a guaranteed income stream, and withdrawals from a retirement account are taxed at ordinary income rates, so no loss of cap gain taxation. Seems to be working, because while the market plummeted in 2008-09, her annuity was guaranteed to double its income base in ten years. While her current cash value hasn't grown much, the income base is compounding at over 7% per year. There was also some sort of death benefit step up, might have been at the same 7%. At ten years, she will be 70. She will then take 7% of her doubled value for the rest of her life.
Unfortunately for you, this annuity is no longer offered. Insurance companies have reduced rates they guarantee. Btw, the company is Met. Annuities aren't a huge part of their business, and seems very likely to be able to follow thru on their guarantees.
But in general, I agree with most posters. Look very closely before proceeding, or don't bother to look at all at variable annuities. Because they are so complicated, and even the agent probably doesn't really understand it, you'd need to either be very sophisticated to understand, or need a savvy third party to evaluate for you.

 

[2B]

I'll make a few comment on the state guarantees. It isn't guaranteed by the state (not full faith and credit) but by the insurance companies that operate in the state that sell that type of insurance. The penalty for a company not participating in a guarantee fund of the failed company is typically to be banned from marketing that type of insurance in the state. I don't think any company has failed to participate but I don't know for sure. I believe that no one has not received their insurance benefit based on the individual states' rules.

The guarantee is also only on the benefits being paid. If your HI company fails, your insurance ends. No other company is forced to take you. This isn't as significant now with the ACA. Principle guarantees are also not covered. All those fancy VA riders are between you and the original company. That guaranteed income stream my not be what was originally promised with another company taking over.

Also, the guarantee value is absolute. Most states have a $100,000 limit but some states have $200,000. I've never heard of the guarantee covering more than that so putting more than that or have a VA balance grow to above that is outside the state guarantee.

 

[Severinooh]

Variable annuities

Since variable annuities are not popular on this forum, I 'd like to give folks the opportunity to be a little more specific. I have been pitched by a very good friend the Prudential Premier Retirement Annuity L Series. Any one have an specific or personal experience with this product?

Thanks

 

[brewer12345]

Since variable annuities are not popular on this forum, I 'd like to give folks the opportunity to be a little more specific. I have been pitched by a very good friend the Prudential Premier Retirement Annuity L Series. Any one have an specific or personal experience with this product?

Thanks

Run, fast.

 

[sailor]

Since variable annuities are not popular on this forum, I 'd like to give folks the opportunity to be a little more specific. I have been pitched by a very good friend the Prudential Premier Retirement Annuity L Series. Any one have an specific or personal experience with this product?

Thanks

Go to page 10 of the prospectus ( http://www.annuities.prudential.com...ruannuities_investor/ppr_pros_2.pdf?siteID=25 ).
Have a look at expense examples for L class.
If you invested $10000 with them, they will have $6374 of it at 10 years mark, regardless if you surrender or annuitize it.
Do you still think this it's a good deal for you? (Hint: it's a great deal for the salesman and insurance company)

 

[Ready]

Would it be possible for us to invite an annuity salesperson to be a guest on this forum, and to go through the details of their product and allow the members to ask questions? I suspect they will have a very hard time convincing anyone, but why not give them a chance to explain why they think the product could be of benefit to us? If nothing else, it could be highly entertaining.

 

[REWahoo]

Since variable annuities are not popular on this forum, I 'd like to give folks the opportunity to be a little more specific. I have been pitched by a very good friend the Prudential Premier Retirement Annuity L Series. Any one have an specific or personal experience with this product?

No personal experience other than noting the prospectus for the product is 165 pages long. Prospectuses - Prudential Annuities

Are you really comfortable investing your money in a financial product that requires 165 pages to define? A document that contains complex formulas and examples, like this one?

Example of Positive MVA

Assume that at the time you request the withdrawal, the crediting rate associated with the fixed allocation maturing on the Maturity
Date is 4.00% (J = 4.00%). Based on these assumptions, the MVA would be calculated as follows:

MVA Factor = [(1+I)/(1+J+0.0025)]^(N/12)
= [1.055/1.0425]^(2)
= 1.024125
Unadjusted Value = $58,712.07
Adjusted Account Value after MVA = Unadjusted Value X MVA Factor = $60,128.47

Example of Negative MVA

Assume that at the time you request the withdrawal, the crediting rate associated with the fixed allocation maturing on the Maturity
Date is 7.00% (J = 7.00%). Based on these assumptions, the MVA would be calculated as follows:

MVA Factor = [(1+I)/(1+J+0.0025)]^(N/12)
= [1.055/1.0725]^(2)
= 0.967632
Unadjusted Value = $58,712.07
Adjusted Account Value after MVA = Unadjusted Value X MVA Factor = $56,811.69

Have you read the prospectus thoroughly and do you fully understand what you would be purchasing and the combined fees you will be paying? If you can answer yes and still think the product is something you need, buy it.

 

[REWahoo]

Would it be possible for us to invite an annuity salesperson to be a guest on this forum, and to go through the details of their product and allow the members to ask questions? I suspect they will have a very hard time convincing anyone, but why not give them a chance to explain why they think the product could be of benefit to us? If nothing else, it could be highly entertaining.

We've had countless annuity salesmen show up on the forum to defend their product. None have lasted more than a few days.

I guess we're not a very hospitable group...

 

[MichaelB]

We've had countless annuity salesmen show up on the forum to defend their product. None have lasted more than a few days.

I guess we're not a very hospitable group...

Yup. Much like the snake oil salesmen of old, when pressed for details and specifics, they find it easier to just move on and [-]find victims[/-] look for new business elsewhere.

 

[travelover]

....... I have been pitched by a very good friend ......

Hmmmm, some friend. Since he is a good friend, look him hard in the eye and ask him what his commission will be.

 

[gcgang]

Go to page 10 of the prospectus ( http://www.annuities.prudential.com...ruannuities_investor/ppr_pros_2.pdf?siteID=25 ).
Have a look at expense examples for L class.
If you invested $10000 with them, they will have $6374 of it at 10 years mark, regardless if you surrender or annuitize it.
Do you still think this it's a good deal for you? (Hint: it's a great deal for the salesman and insurance company)

Contrast that $6374 charge after ten years with Vanuard S&P500 Investor class of $217. "Security", "an income you cant outlive", or whatever they are trying to sell you, has quite a high price.

 

[2B]

We've had countless annuity salesmen show up on the forum to defend their product. None have lasted more than a few days.

I guess we're not a very hospitable group...

Some have been honest in saying they were and some have been trolls that were eventually exposed.

 

[REWahoo]

Some have been honest in saying they were and some have been trolls that were eventually exposed.

True, and neither strategy resulted in a successful defense of an indefensible product. (Note we are referring to the many pseudonyms for variable annuities here, not about SPIA's.)

 

[ERD50]

Hmmmm, some friend. Since he is a good friend, look him hard in the eye and ask him what his commission will be.

Personally, I don't see the value in this.

First, when I purchase something, my concern is if the price I am paying fits the value I expect the product to deliver. If I'm comparing two refrigerators, I look at many things, but I don't bother trying to evaluate the sales persons commission. My out of pocket is what I care about.

Second, these annuity sales people are likely prepared with all sorts of round-a-bout answers. What's the point? And if he/she delivers a superior product (note I said "IF"!), then he//she deserves a great commission.


So like others have mentioned, just try to understand and evaluate the product. That should be enough to dissuade a purchase, and question just how good of a friend this person is. Well, they may be a good friend, but like most of us, they need to put food on the table. Your table is likely secondary to that.

-ERD50