Annuity Returns

well-informed consumers of today know that many variable annuities - their high cost and complex patterns - is a confusing maze of smoke and mirrors. But today, it is simple, low cost annuities that can offer consumers a better value. Here are three common questions that I often heard about variable annuities.

1. Question: "Is the cost of the variable cost annuity insurance steep cut in my back?"

Fact: There are benefits to be low cost to impose minimum insurance costs and preserve the value of tax deferral.

Most variable annuities charge fees insurance assets such as mortality and expense (M & E) expenses. Insurance costs are typical for an average VA 1.33 percent of assets per year, according to data from Morningstar of December 31, 2008. Critics are quick to point out that these costs can erode the growth of your portfolio over the long term, these costs can amount to thousands or tens of thousands of dollars each year in the case of wealthy investors with large balances.

The good news is that there is now little annuity variable cost that much less dependent, and products are evolving to provide you with better value.

2. Question: "I understand annuities can sometimes pay to the person of high sales commissions."

Fact: There are new variable annuity that does not pay a commission of any kind.

Most annuities Variable pay the seller a commission, usually within five to seven percent range for. The commission salesperson working for the company paying the selling variable annuities? Who can create a conflict of interest.

As Wall Street Journal columnist Jonathan Clements writes, "variable annuities are a favorite with unscrupulous investment advisers, who may collect commissions by foisting these ridiculously high turkey on unsuspecting investors." 1

New variable annuities, no commission is designed with two important goals. First, no commission-VAS help keep costs low, so they can provide tax-deferred accumulation cost-effectiveness. Secondly, no commission-VAS are perfectly aligned with the mission of advisors fee-only, which do not accept commissions from any of the products they recommend, allowing them to fulfill their fiduciary duty you and provide you the best advice financial goals.

3. Question: "Is it true that some death benefit riders can drain back variable annuity?

Fact: There are variable annuities that offer a simple death benefit base without charge.

A death benefit base can ensure that your beneficiaries will receive the current value of the contract, usually without the delays of probate.

Enhanced Death Benefit, which are generally designed to protect against market downturns or rising inflation, may cost you an extra 50 basis points per year or more. While some investors may believe that an enhanced death benefit is worth the extra cost, the insurance costs may cut into your returns.

If your goal is the effective transfer of wealth, you may want to consider other possibilities. For example, if you are eligible, a contract term of life may be a more profitable alternative. Unlike active variable annuities, life insurance is not subject to tax at ordinary income passed on to beneficiaries.

1 Defending decried as an investment: When Variable Annuities sense, Jonathan Clements, Wall Street Journal October 20, 2004