Variable Annuities
Modern variable annuities also give you the option of
directing how your money should be invested in separate accounts.
These accounts are offered by some of the most respected money
managers in the industry. Many mutual fund companies will also offer
variable accounts that closely mirror their mutual funds in terms of
performance, holdings and risk.
During the late 1980's, insurance companies began bundling more of
these segregated accounts inside their variable annuity products. To
remain competitive and increase brand awareness, well-known money
managers began offering even more variable annuity accounts, in
addition to their existing mutual funds.
You can find many of the most popular money managers in today's
variable annuity.
When you own a variable annuity, you can tell the insurer which
underlying accounts you would like to use. The value of the annuity
contract will then vary depending on the performance of the separate
accounts you chose.
These variable accounts may rise or fall in value. However, with
variable annuities, you can invest in a number of different options
without additional costs or transaction fees. Plus, many insurance
companies will offer a death benefit that will never be lower than
the amount you originally invested.
With today's variable annuity, you can tailor your retirement
account to meet your own individual needs.
There are other fees in annuity contracts that, while beneficial,
inhibit "quick sales." For instance, variable annuities often incur
a Mortality and Expense charge. Usually a percentage of your
account's value, M&E charges compenstates the insurance company for
risks it assumes under the annuity contract. M&E charges sometimes
are used to pay for commissions to financial professionals.
In addition, the insurer may deduct administrative fees from your
annuity account. Just like banks and brokerages, insurance companies
will have a fixed expense for maintenance of your account. These
administrative fees can be fixed (e.g. $25 or $30 per year), or they
also may be a percentage of your annuity's value. Check the insurer
for details.
And if you own a variable annuity, the money managers operating your
variable accounts will incur fund expenses. Mutual funds typically
have an annual fund expense, represented as a percentage of account
value. These money managers will typically charge the same fees for
their variable accounts, too. Be sure to ask your Annuity Specialist
for a prospectus, which explains the fees and charges in detail.
What if you're getting slapped with these fees, but your annuity is
not growing as fast as you'd like?
If you own a variable annuity, you could consider switching into
other variable accounts. That way, you would not incur any surrender
charges or capital gains.
|
