Variable Annuity Questions


F

FeDude

My Mother-in-law recently became a widow (age 75) and when reviewing
her situation, I found out she invested most of her savings (~$140K)
into variable annuities in Fla. I have an appt to see the guy who sold
her these investments because I want to understand her complete
financial picture. My personal opinion is that variable annuities were
not a good investment for her, but I'll reserve judgment until I find
out all the details.

I'm trying to compile a list of questions to ask the adviser when I
meet with him. I'd appreciate help in compiling this list. Here is my
list so far:

Official name of the fund
Fund symbol
Number of shares
Current value
Annuity?
- Fixed or Variable?
- Death Benefit?
Insurance component?
- How much?
- Current Beneficiary
Redemption penalties (if any)
Ongoing fees
Beneficiary in the event owner dies
 
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E

Elle

FeDude said:
My Mother-in-law recently became a widow (age 75) and when
reviewing
her situation, I found out she invested most of her
savings (~$140K)
into variable annuities in Fla. I have an appt to see the
guy who sold
her these investments because I want to understand her
complete
financial picture.
She'll be with you at the appointment, right?

Or is the guy just going to hand you her personal info
without batting an eyelash?
 
C

Cal

FeDude said:
My Mother-in-law recently became a widow (age 75) and when reviewing
her situation, I found out she invested most of her savings (~$140K)
into variable annuities in Fla. I have an appt to see the guy who sold
her these investments because I want to understand her complete
financial picture. My personal opinion is that variable annuities were
not a good investment for her, but I'll reserve judgment until I find
out all the details.

I'm trying to compile a list of questions to ask the adviser when I
meet with him. I'd appreciate help in compiling this list. Here is my
list so far:

Official name of the fund
Fund symbol
Number of shares
Current value
Annuity?
- Fixed or Variable?
- Death Benefit?
Insurance component?
- How much?
- Current Beneficiary
Redemption penalties (if any)
Ongoing fees
Beneficiary in the event owner dies
You have it about covered. However, I do believe that it will be necessary
for her to be at the meeting to approve the Agent providing personal
information to you.
Cal
 
J

joetaxpayer

FeDude said:
My Mother-in-law recently became a widow (age 75) and when reviewing
her situation, I found out she invested most of her savings (~$140K)
into variable annuities in Fla. I have an appt to see the guy who sold
her these investments because I want to understand her complete
financial picture. My personal opinion is that variable annuities were
not a good investment for her, but I'll reserve judgment until I find
out all the details.

I'm trying to compile a list of questions to ask the adviser when I
meet with him. I'd appreciate help in compiling this list. Here is my
list so far:

Official name of the fund
Fund symbol
Number of shares
Current value
Annuity?
- Fixed or Variable?
- Death Benefit?
Insurance component?
- How much?
- Current Beneficiary
Redemption penalties (if any)
Ongoing fees
Beneficiary in the event owner dies
The only thing I'd suggest (besides having her at your side as Elle
noted) is to ask for a copy of the paperwork she signed when buying the
VA. That disclosure paperwork was her acknowledgment that she understood
VAs, and still wished to purchase. When last I did this, the salesman
produced a document with a scribble on the signature line, nothing like
my clients handwriting. And boxes checked suggesting that she had
'experience' with VAs for 10+ years. In reality, she didn't know she
owned a VA when we first met, let alone had any 'experience'. That may
be your exit ticket.

OTOH, an immediate, fixed annuity, may very well be an appropriate
purchase for her, depending.

JOE
 
E

Elle

joetaxpayer said:
When last I did this, the salesman produced a document
with a scribble on the signature line, nothing like my
clients handwriting. And boxes checked suggesting that she
had 'experience' with VAs for 10+ years. In reality, she
didn't know she owned a VA when we first met, let alone
had any 'experience'.
Do tell more as you are able.
That may be your exit ticket.

OTOH, an immediate, fixed annuity, may very well be an
appropriate purchase for her, depending.
As long as the owner is elderly and currently drawing on the
VA, I thought they were much more acceptable by the MIFP
regulars, no?
 
S

scott

The VA might not be a bad investment for her. Depends on what the use
of the funds are intended for, time line, and the investment choices
within the VA to name a few. They are not all bad. I own one with
enhanced death benefit as I am not able to get conventional life
insurance. As you may be aware, riders can be added that add features
that may be very suitable for a given situation. There are some that
can reset your highest account balance to annuitize on annually, and
for some clients who are planning on annuitizing the money - that
would provide protection against a big market downturn while still
letting them participate in their market investment choices of the
VA. Check it out. That said, these do tend to be over-promoted by
folks looking for a big comission.

Scott P.
MetLife
 
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J

joetaxpayer

scott said:
The VA might not be a bad investment for her. Depends on what the use
of the funds are intended for, time line, and the investment choices
within the VA to name a few. They are not all bad. I own one with
enhanced death benefit as I am not able to get conventional life
insurance. As you may be aware, riders can be added that add features
that may be very suitable for a given situation. There are some that
can reset your highest account balance to annuitize on annually, and
for some clients who are planning on annuitizing the money - that
would provide protection against a big market downturn while still
letting them participate in their market investment choices of the
VA. Check it out. That said, these do tend to be over-promoted by
folks looking for a big comission.

Scott P.
MetLife
If I may ask just one question - what kind of death benefit is provided,
and at what cost? And the annual reset, what is the fee for that? If a
VA is a back-door way to get some level of life insurance for those who
are uninsurable, I'll keep that in mind. As far as the reset feature,
I'd need to see the terms. One can certainly analyze the data to
discover how often such a feature would pay off, i.e. those times the
market is far enough off its high point that paying x% was a good move.
Depending on the cost of that provision.
JOE
 
S

scott

If I may ask just one question - what kind of death benefit is provided,
and at what cost? And the annual reset, what is the fee for that? If a
VA is a back-door way to get some level of life insurance for those who
are uninsurable, I'll keep that in mind. As far as the reset feature,
I'd need to see the terms. One can certainly analyze the data to
discover how often such a feature would pay off, i.e. those times the
market is far enough off its high point that paying x% was a good move.
Depending on the cost of that provision.
JOE- Hide quoted text -

- Show quoted text -
As I mentioned, you have to want/need specific features to make the VA
attractive over other alternatives. I'm not promoting my company's
product, but the Guaranteed Minimum Income Benefit "GMIB" cost is
0.50% fee annually. If this fits the need and helps someone sleep
better knowing their nest egg won't train-wreck on them, isn't it a
viable alernative? Granted you could invest conservatively to avoid
big losses, but you won't get the returns you would staying in the
market over the long term. There are all sorts of variations on these
VA products. Many people are interested in doing 401k rollovers to
annuities so they know their money will last their life and they don't
have to worry about market ups and downs or outliving their savings.
The insurance company is taking the risk obviously, and you pay for
this sort of protection as you would for any other type of insurance.
They are not for everyone, although granted some places try to sell
them to everyone who walks through the door.

The typical 5% guaranteed return rider is generally of limited value
as the market will outperform it handily under nearly all historical
analysis, but there are a lot of people who sleep better because of
that sort of guarantee on their money.

Scott


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.
 
K

kastnna

I think you had it with "sleep better at night." Its a risk/return
trade-off situation.
I immediately turn an eyebrow up when anyone argues superior returns
with VAs. They're insurance products! They mitigate risk! They do not
often maximize return (if ever).

They are definitely not suitable in many cases, but in older clients
that can neither stomach nor have the time to ride-out a down-turn the
guarantees are worth considering.
 
J

joetaxpayer

scott said:
As I mentioned, you have to want/need specific features to make the VA
attractive over other alternatives. I'm not promoting my company's
product, but the Guaranteed Minimum Income Benefit "GMIB" cost is
0.50% fee annually. If this fits the need and helps someone sleep
better knowing their nest egg won't train-wreck on them, isn't it a
viable alernative?
I appreciate the disclaimer. No need. I would pay .5% to guarantee the
prior Dec 31 is the minimum



I appreciate the disclaimer. No need. I would pay .5% to guarantee the
prior Dec 31 value would be the minimum I'd end the year at. But I
suspect it's not that simple. There are likely other fees below it, that
make the total near 2%/year. And at that level of fees, a mix that's
heavy in fixed instruments while light on stocks would provide the
better return. If it were truly just the .5%, what a deal that would be.
On $100K, just $500 to guarantee an annual reset of the floor value.
Sign me up.

JOE
 
R

rick++

If its really recent, I believe there is a 21-day no-penalty
cancellation window. At least the one I bought had that.
 
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K

kastnna

Actually the GMIB and GMWB discussed above are "accounted" differently
than true account value. For the GMIB, the VA establishes an "account
value" from which fees & expenses are deducted (sometimes excessively,
no doubt). This is the value that fluctuates with the market and would
be paid to the account owner if the annuity was surrendered.

The "benefit base" is used for secondary guarantee purposes. For the
GMIB, Metlife allows an annual withdrawal of 5% the original purchase
amount or the current account value (whichever is higher). No matter
how badly the sub-accounts perform this 5% is guaranteed until the
account value actually reaches zero. At that point, the account is
annuitized from the original purchase price and normal annuity
payments are made.

Simply put, if you purchase a $1M VA you can take $50K a year
indefinitely and if the market tanks so badly that the sub-accounts go
to zero, the account is immediately annuitized at $1M. If the account
grows you can take 5% of the new, higher amount. If the account grows
and then dives, you can lock in 5% of the peak account value before
the sub-accounts took a dive.

The drawback is that as the account value goes to zero, annuitization
is the only way to get anything out of the policy. Even though you can
withdraw $50K a year when the account value is $5.00, the surrender
value truly is $5.00 (before surrender charges, of course.)
 

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