Posted on January 22, 2010.
What expenses are involved in the variable and fixed annuities? Are they less than mutual funds? How the insurance company make money rents?
Expenses are generally higher in variable annuities as mutual funds, but there are no charges before the end of treatment and annuities can offer things that mutual funds can not - as guarantees .
Annuities can help you 1) receive guaranteed payments of retirement income as long as you live, 2) protect beneficiaries with a death benefit 3) Diversify your investments. 4) grow assets on a tax-deferred basis and 5) Do not outlive your assets.
If you want to protect your beneficiaries, variable annuities typically offer a choice of death benefits to protect assets for your beneficiaries after you die before annuitization. Moreover, the death benefit variable annuity avoids the expense and time of registration.
If you are concerned about the volatility of the stock market variable annuities offer a "benefit income" feature. This optional feature (available for a fee) can provide a minimum level of income (on annuitizing the contract) the decline in the market dramatically. Some variable annuities also offer principal protection features to ensure you get at least your initial investment after a certain period of time (usually ten years).
There are more taxes into an annuity a mutual fund. If someone tries to tell you otherwise, they are lying.
There are many hidden costs in the rents. First Mutual funds often include computing costs and 12b-1 fees. They are your agent and his company. When you die, the insurance company keeps all your money, your heirs do not get it. They use the money to pay the pensions of those still alive, and to make a profit.
Do not buy an annuity unless you understand it inside and out. They are difficult to impossible to break. Consider a low cost annuity Vanguard.com. (But only if you understand.)
There are things I agree and disagree with the replicants above.
The costs of an annuity may vary. It depends on the duration of the leasing period, living and death benefits ... loads of money and 12B-1 if necessary.
The insurance company makes money for certain expenses to sales at the beginning, and bet that the actuaries calculate.
Are they more expensive than mutual funds? Depends on the annuity depends on mutual funds. The pension I usually use with customers with a cost of approximately shares of class B.
To comment on whether they are good vehicles or not .... In my opinion, there are few vehicles, where you can invest a large lump sum of money (an inheritance) have a tax-sheltered deferred. In addition, as people live longer with the advances in medicine and other, sometimes a variable annuity can be the difference between life and living poorly.
I recommend talking to a good financial adviser to help you with questions like this to understand what is best for your situation.
Easiest is to go to your bank, they ususally have a financial adviser or represented lisenced on annuities and mutual funds. Since annuities are the insurance company, states varies, but the policy are free look, so you can know the policy. Regarding mutual funds, you simply request a prospectus.
