And This is Why Variable Annuities Make Sense

Posted by Mike on October 6, 2008 under Main | Be the First to Comment

Given the market reaction to the Fed Bailout and the current credit crisis this is why a variable annuity makes sense for equity investors. While many financial services firms are in turmoil, going bankrupt or becoming commercial banks, not to mention the market retreat – is that what we will call it? – insurance companies have done fairly well.

Yes, AIG had issues, but the insurance divisions did just fine. The Hartford accepted a cash infusion from Allianz, but that is an investment, so far at least, and that was because Hartford was concerned over a downgrade, not a failure type situation. Other than those instances the insurance industry has held up very well with limited exposure.

The guarantees offered by variable annuities may not be around forever given this whole crisis, so it may be prudent to look at them now. Living benefits offer a rich guarantee that is not like any other type of investment in the world. Yes, you will pay for it, but come on, look at the market. Would you rather pay for nothing and have huge losses or would you rather have to pay 3% a year to guarantee income for life?

It seems like an obvious choice to us, but that is your call.

The market turmoil is not going to be over for awhile. What we see happening today is what we feared for a longtime. Europe is in trouble, Congress passed the bailout package and the markets still retreat, almost 1,000 points in a week. These are indications that there is more to come. The only saving grace, if there is any, is that it showed strength at the end of the day, but it was, overall, on light volume. We expect more losses in the future though.