Variable Annuities are Starting to Lose Appeal

Variable annuity sales had been surging prior to the onset of the financial crisis.

As reported earlier, many customers who had purchased variable annuities with guaranteed living benefits (GLBs) two or more years ago have been well insulated from the financial storm.

However, the current environment for variable annuities and living benefits is vastly different than it was even a year ago.

Insurers are now increasing prices and scaling back on the richness of product features, making it a less than perfect time to consider purchasing one of the living benefit guarantees that can be attached to variable annuities:

"For example, several insurers reduced their guarantees from 6% of the initial investment to 5% for annuities sold after May 1. They also minimized their risk by limiting the types of funds in which you can invest, eliminating some of the riskiest funds from the lineup of choices. Some now require annuity holders to keep at least 20% of their money in a fixed account."

In addition, consumers who have existing variable annuities with living benefits are strongly encouraged to hold on to what they have and avoid a Section 1035 exchange:

"If you already have one of these annuities, though, it's a good idea to hold on tight. Insurers can rarely make changes to the guarantees once the annuities have been issued, and if you cash out you could be hit with a surrender charge and tax bill. You could also get a lot less money than you expected..."

Source: Kiplinger

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