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Variable annuities are inherently one of the most confusing of all the annuities in the market place. There is no doubt about that in my mind. They have many pitfalls and risks and if you don’t understand them, you are likely to get involved with an annuity that has high fees and horrible performance as well.

Now, don’t get me wrong, there are people who have held their variable annuities throughout the good market years and have done quite well. I would venture to safely guess that they would have done better outside the same variable annuity. And it’s a pretty safe guess. Also, there have been people who have invested money in a variable only to die with market losses and to have their families become whole by benefiting from the death benefit. IT’S NOT ALL BAD. But it’s mostly far from good. I can comfortably say that variable annuities do have some benefits, however, there are only a very few specific times where they fit in a client’s portfolio.

So with that said, let me talk briefly about the living benefit…the 7% guarantee. Everyone who calls asks me is it too good to be true. IF YOU HAVE TO ASK IT PROBABLY IS. Think about it, when the market interest rates are 3% and 4%, do you think the insurance companies just want to be nice and offer you a 7% return on your money? Do you honestly thing they can afford to offer you a rate of return that is that much higher than the market? The answer is NOT A CHANCE. They don’t get to be the big bad insurance companies by giving away money. And they don’t get to be that profitable by not being prudent about giving away money.

There are strings attached to this benefit. You must understand what the risks are and fully be aware of what the insurance company is doing to give you this ’7% guaranteed return.’

And just be aware, things aren’t always as they seem. In particular, when you get an offer for one of these 7% guarantees, read the fine print. See it is what you have to do in order to be given your 7% guarantee at the end of 10 years. You’ll be surprised at what you have to do in order to get the guarantee. And you’ll also be surprised at how long it takes to get your ‘guaranteed’ money. And in the end, you’re going to find out that it is not what it seems.

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