Equity-Indexed Annuities – Buyer Beware

The Financial Industry Regulatory Authority (FINRA) posted the following Investor Alert:

Caution! Some Equity-Indexed Annuities (EIA) allow the insurance company to change participation rates, cap rates, or spread/asset/margin fees either annually or at the start of the next contract term. If an insurance company subsequently lowers the participation rate or cap rate or increases the spread/asset/margin fees, this could adversely affect your return. Read your contract carefully to see if it allows the insurance company to change these features.

If you didn’t understand a word in the preceding paragraph don’t buy an Equity Indexed Annuity before reading the full report on the FINRA web site.

Annuities are complex INSURANCE instruments SOLD by Insurance Agents who receive LARGE commissions for selling these products.

SOME annuities can be a good solution for SOME people but you would be hard pressed to find a salesperson that will tell you that their product isn’t appropriate for YOU in YOUR situation.

First there was Whole Life Insurance, then Universal Life, then Variable Universal Life. All products designed to hide the underlying cost of the insurance by combining it with an investment.

An annuity is simply an insurance product in reverse. You give the insurance company a pile of cash and they dole it back out to you in small pieces. If you die young they win, if you live to be 100+ you win. Reverse Mortgages work on the same basis.

A  month doesn’t go by where I don’t receive a “Special” invite to a 5 star restaurant the likes of “Ruth Cris” offering a free dinner while I learn about the “new investment strategy of the future”.

These are all bait to sell you on Equity Indexed Annuities. While you are sitting there listening to their utopian solution and enjoying your free steak, ask yourself how they can afford to buy lunch for thousands of “prospective” clients around the country each and every month.