Equity Index Annuities

Posted by Ray on June 2, 2007 under Main | Be the First to Comment

Now, as many of you already know I am no fan of equity index annuities as most of them are big on promise, but short on delivery. I also cannot believe I am going to utter these words, but I just got done reading an article from my favorite Mr. Burns titled; “Equity Index Annuities Fall Short” and I agree with him. To be perfectly clear, I hate index annuities and I think the vast majority of the products are very bad for investors.

Not because it was an anti-equity index annuity, but because everything he wrote was true. In my own comparison on these products I found only one that performed well over the long term. All of the more widely sold products performed pretty badly and those popular products happen to pay the highest commission.

The numbers do not lie and he used real studies to show that the average rates of return on these products are on par with traditional fixed annuities. The problem with EIA’s is the fact that they have so many moving parts and the insurance carrier can change the caps every year. This means you have no idea what your cap is going to be year over year. That is the biggest problem, but not the only problem.

The surrender schedule is usually way too long and the commissions, some of which can be as high as 14%, are high. There is simply too many benefits for the agent and not enough benefits for the consumer. You would be much better investing into a variable annuity with a living benefit or into a traditional fixed annuity instead of an EIA. Do not get me wrong, not all equity index annuities are bad, but most are.

The biggest problem I have with these products is you have people making outrageous claims about the product. Need I remind you of this:

[youtube]http://youtube.com/watch?v=XWQVUuwUook[/youtube]