Quote:
Originally Posted by MickeyStevens
Interesting, we put money into 3 annuities quite a few years ago, we now enjoy a steady stream of income each month from them.
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Many people don't know that a variable annuity is a life insurance policy. It is a contract, not a typical investment. In rare cases, an annuity can be an acceptable product. But, typically, a person who sells a variable annuity will receive an upfront commission of about 10 percent of the amount invested. So, if a client buys an annuity for $100K, the salesperson will get a windfall bonus of $10,000. That is why many annuities are sold to people who should not be buying them. The insurance companies are happy to pay these large commissions because they know that they will recover the money with the annual built-in management fees for the annuity contract itself, and also the management fees for the underlying investments that are made on behalf of the client as part of the annuity contract. Also, the annuity contract will have a "surrender charge" if the client wants to terminate the contract early, usually within 7 to 10 years after signing it. This is a penalty for early termination that many people end up paying. So, annuities are often pushed by salespeople just to get a commission, and not to assist the client with appropriate investments.
Annuity contracts are very lengthy and complicated, and the salesperson will not even let you read the contract until you have already paid for it. Last year, a friend asked me for advice on a specific annuity, so I called the insurance company and asked for a copy of the contract. The person I spoke to refused to provide it, got extremely angry, and hung up on me. I would not advise anyone to sign a contract that you cannot review before signing.