Annuity IQ

You may have heard about these no surrender variable annuity contracts and they may sound attractive. What’s not to like, tax deferral, a broker’s advice and it mutual funds, usually, from different top self mutual fund families. We say they are not the best products out there.

Here’s why:

The fee for a no surrender broker sold variable annuity is higher than a standard 7 or 8 year contract. Usually, the fee is .30% higher than traditional variable annuities. The fees are higher to compensate the company for the increase of liquidity and to pay out the broker/agent an upfront commission of, usually, 1% and a trailing commission of 1% paid annually to the broker.

Now, do not get us wrong, we do not care about the commission, but what we do care about is needlessly spending money on a contract that you plan on holding on to for the long term. The average “C” share or no-load broker sold variable annuity is about 1.70% a full .30% higher than the average 7 year counter part. If you add any living benefit then the cost can skyrocket by as much as 1%.

Our point is, why spend the money if you do not have to? The broker/agent can be compensated by the same amount as the “C” share annuity by using the traditional product with lower over all expenses. These products do fit a specific niche, but overall they make little sense. Especially, since you can find plenty of annuities that offer living benefits for a cost of about 2% or so, that includes sub-account fees to.

If you are buying a living benefit on these contracts then you are automatically thinking long term. Because of this you should consider a cheaper longer term or standard variable annuity contract. Of course, this is just our opinion and everyone’s situation is different so be sure to ask your financial advisor which annuity is best for your needs.