Call Now For a Free Consultation:
(614) 502-6165

Variable Annuities - Very Expensive Mutual Funds That Are Nearly Impossible to Understand

The variable annuity is one of the insurance industry's most popular products. Insurers and brokers have long pitched variable annuities as a retirement-savings vehicle for people who max out their 401(k)s or IRAs. At the end of 2013, the total amount U.S. investors had placed in variable annuities was an astounding $1.8 trillion.

A variable annuity combines a death benefit and mutual-fund investing. But what your life insurance agent or financial advisor may not tell you is that they receive large commissions for selling them, giving them a significant financial interest in the sale. Additionally, annual expense ratios for variable annuities can reach as high as 3% of the invested assets. This means that you need to achieve an annual return of 3% just to break even. That is far more than most people would pay in a traditional retirement plan or mutual fund. That is a lot to pay for an insurance component that many people do not even need, or much more expensive than a term life insurance alternative.

Variable annuity contracts are also very difficult to understand and most advisors who sell them and consumers who buy them don't understand the complexities. Just try to read the annuity contract before you buy it – it's mind boggling. My view is that you should never buy something you don't understand.

There is more. Investors who withdraw money earlier than they had planned often face high surrender charges. Withdrawals from an annuity during the first ten years of the contract can be assessed fees of as high as eight percent, or even higher. And some savers who have begun living off the investments from variable annuities have complained their tax bills on the withdrawals were higher than they expected.

Variable annuities are often riddled with opaque terms and conditions, high annual fees, hefty surrender charges, and illusory tax benefits. Many investors find out too late that that they would have been much better served if their financial advisor had steered them toward other, more transparent, lower-cost investment alternatives.

The information contained in The Firm’s posts on its blog, fraud alerts, investigations or elsewhere on the site is based upon information obtained from other sources including, but not limited to, news outlets and federal, state, and regulatory agency filings. All suspects and subjects of postings herein are presumed innocent until proven guilty in a court of law or administrative action and any and all crimes are alleged until a court or regulatory agency finds otherwise .

Share This Story
If you found the information provided by this article useful, consider sharing to your social media channels to help others in their search for reliable resources.
Consult with Our Legal Team
There is never a cost associated with a consultation
Columbus Office

614-224-6000
305 W. Nationwide Blvd
Columbus, OH 43215
Meyer Wilson
New Orleans Office

900 Camp Street 
Suite 337
New Orleans, LA 70130
Los Angeles Office

310-905-8688
2029 Century Park East,
Suite 400N
Los Angeles, CA 90067
Cleveland Office

216-600-1355
4781 Richmond Rd.
Suite 400
Warrensville Heights, OH 44128
Bloomfield Hills Office

248-817-8214
41000 Woodward Ave.,
Suite 350
Bloomfield Hills, MI 48304
Quick Links
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter. No recipients of content from this site, clients or otherwise, should act or refrain from acting on the basis of any content included in the site without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from an attorney licensed in the recipient's state. Read More
The information contained in this Website is provided for informational purposes only, and should not be construed as legal advice on any subject matter.
Read More
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram