If you do some research about variable annuities (herein after referred to as VA’s), you will find it is very easy to find volumes of negative information and press. When you ask most people’s opinion about VA’s, some of the most common responses are; “I don’t like VA’s” or “I’ve heard lots of bad things about VA’s”.
Similar to whole life insurance and reverse mortgages, VA’s are highly controversial products that have always been the subject of great debate. In fact, there are many who passionately proclaim that “nobody should ever own one”.
I believe it is extremely unprofessional for anyone to state that any financial product is always bad. For example, there are some who believe “nobody should ever buy a VA”. If VA’s are really a bad investment for every person, in every situation, then nobody would ever own one – and the VA industry would not exist today.
However, the VA industry is robust and growing, which means people choose them because there is a perceived value. Therefore, in an effort to determine who is a good fit, this article is designed to help debunk the most popular myths and hopefully provide some clarity.
DEBUNKING THE MYTHS OF VA’S
Over the past decade, the amount of money in VA’s has grown to levels greater than any other time in history.
However, this should not necessarily be viewed as good news since VA’s are very complicated and sophisticated products – containing lots of moving parts. Also, given the growing number of VA companies, contracts, and riders, these products are becoming increasingly complex.
As a result, this opens up the opportunity for many challenges for investors. For example, VA’s can be recommended and sold by primarily using the “good soundbites” – versus spending lots of time to review and analyze all of the details. In addition, because these products are so difficult to fully understand, they can be misunderstood, miss-informed, and in some cases, miss-sold.
Therefore, the primary objective of this article is to debunk many of the most common myths that cause many investors and investment professionals to perceive VA’s as a bad investments.
MYTH #1: VA’S HAVE LARGE SURRENDER PENALTIES
It would be far too time consuming to list all of the various surrender penalties within each of the VA companies and contracts. So for the sake of brevity, below are two examples of common surrender period options and penalties:
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