Variable Annuities
71 RepliesJump to last post
[quote=anonymous]
"Not necessarily: http://www.sec.gov/investor/pubs/varannty.htm#vchMortality and expense risk charge – This charge is equal to a certain percentage of your account value, typically in the range of 1.25% per year. This charge compensates the insurance company for insurance risks it assumes under the annuity contract. Profit from the mortality and expense risk charge is sometimes used to pay the insurer's costs of selling the variable annuity, such as a commission paid to your financial professional for selling the variable annuity to you. "
Yes, necessarily. You need to read critically and use your mind and not your eyes. You can't think critically and believe that M&E is to compensate the insurance company for insurance risks. If this was true, the greater the risk, the higher the M&E charge. The reality is just the opposite. The lower the risk, the higher the M&E charge. Ex. George and Sam both invest $100,000 in a VA with a 1% M&E charge. George makes great investment choices. Sam makes terrible investment choices. 20 years later, George's account value is $500,000. Sam's account value is $25,000. George is paying $5,000 in M&E charges. Sam is paying $250. What is George getting in return for this $5000? Absolutely nothing. If he dies, his family gets the contract value. What is Sam getting in return for his $250? $75,000 of life insurance. If he dies, his family gets $100,000. They get the contract value of $25,000 and the insurance company has to reach into their coffers for the other $75,000. Why does George pay $5000 when there is no risk? Simple. The purpose of the M&E is to compensate the insurance company. This is how they make their money and pay their expenses. I'm not arguing against annuities. I use them often. I'm not complaining about the expenses. I'm simply saying that it's complete B.S. to say that the purpose is to cover the insurance company against insurance risks. I'd be happy to apologize if I'm wrong. Can you name one insurance company that lowers the insurance charge in their VA when the risk goes down? Compare it to a UL policy. George and Sam both have $100,000 UL policies in which the death benefit doesn't increase. George has $50,000 of cash. Sam has $10,000 of cash. George pays for $50,000 of life insurance. Sam is paying for $90,000. In this case, the insurance charges actually are compensating the insurance company for insurance risks. Information coming from a reputable source doesn't make the information accurate. Say something that is wrong enough times by enough different sources and people start to believe it...even those who should know better. My point is that the "M" of "M&E" is mostly B.S. M&E expenses is the primary way in which the insurance company makes money on a VA. [/quote]Did your compliance department approve of this communication with the public? What other regulations do you like to violate?
[quote=RickRoss]I know you’re all probably foaming at the mouth with the commissions tied to a potential opportunity of selling someone a variable annuity, but I’m posting regarding just the opposite.
I know there is a lot of knowledge on this board, and I sincerely hope someone out there is willing to provide sound advice. I am not a registered rep, nor do I have a lot of experience in the financial services world, but I do know that variable annuities have hefty commissions tied to them, and I do know that they're not right for everyone, or even most. My aunt, who probably has another 20 years or so in the workforce, is considering a variable annuity. Her advisor tells her it's probably not the best idea for her, and then strategically tells her that there's a guaranteed point which her returns would not fall under regardless of the market (seemingly a ploy to get her to buy). Can someone who's knowledgeable provide an intelligent, non-insulting/non-sarcastic comment or argument that I can present to her about why she shouldn't buy one? I really would hate to see her make a big mistake. Thanks.[/quote]Hey everyone...I know you're all foaming at the mouth at the thought of submitting patients to non-critical medical procedures. Now that I've prejudged and insulted you all, let me ask my question of you.
I'm not a board-certified physician like you all, but I did take first aid as a boy scout. Anyhow, my 35-year old aunt has a sharp pain in her lower right quadrant. Her internist tells her it's probably appendicitis and he suggests she go through surgery. I don't know much about appendectomies, but I know they cost a lot and doctors make a ton of money off them. He keeps talking about "...if you don't do this you'll die from septicemia" or some such nonsense.
I know I came in here with a smug and a scornful, demeaning attitude towards your profession, but can someone who's in-the-know help me convince her it's just gas from too many bonbons? And that she really shouldn't go through this procedure? I'd hate to see her make a big mistake.
Like letting nephew Rick interfere in something that he knows nothing about? That's great. I agree that if you're really concerned you should meet with her and her FA.
By the way Rick, I get paid the same whether I put someone in mutual funds or annuities. So not all advisors are 'foaming at the mouth' thinking about annuities.
CR
PS - You may want to work on your inter-personal communication skills
Please do tell us, you've had 38 posts on this site and you're not a rep and don't have a lot of experience. What is it exactly that you do do?I am not a registered rep, nor do I have a lot of experience in the financial services world…
[quote=anonymous]Ex. George and Sam both invest $100,000 in a VA with a 1% M&E charge. George makes great investment choices. Sam makes terrible investment choices. 20 years later, George’s account value is $500,000. Sam’s account value is $25,000. George is paying $5,000 in M&E charges. Sam is paying $250.
What is George getting in return for this $5000? Absolutely nothing. If he dies, his family gets the contract value. What is Sam getting in return for his $250? $75,000 of life insurance. If he dies, his family gets $100,000. They get the contract value of $25,000 and the insurance company has to reach into their coffers for the other $75,000.[/quote] No. Not all annuties automatically come with the guaranteed death benefit rider. If you get an old plain jane annuity with $100,000 and it goes down to $50,000, then your beneficiaries are getting $50,000. You can add a guaranteed death benefit rider for additional cost to get that principal guarantee.“Did your compliance department approve of this communication with the public? What other regulations do you like to violate?”
Bobby, how about you? Does your compliance department allow you to post here knowing that the public can you read what you post? Did they approve of this communication with the public?[quote=anonymous]“Did your compliance department approve of this communication with the public? What other regulations do you like to violate?”
[/quote]
I'm on a board where everyone is presumed to be a registered rep. You are communicating with someone who has admitted that they are part of what is to be considered the general public. I can't believe that you were too dumb to anticipate my response before you stuck your foot in your mouth. What other regulations do you like to violate?
[quote=Primo]Bobby must have gone to church today. Little holier-than-thou.[/quote]
Holier than though and right.
[quote=snaggletooth][quote=RickRoss]Please do tell us, you’ve had 38 posts on this site and you’re not a rep and don’t have a lot of experience. What is it exactly that you do do?[/quote]
You don’t know who “Freeway” Rick Ross is? Where did you sped the 80’s.
Well, for part of it, in the womb.[quote=snaggletooth][quote=RickRoss]Please do tell us, you’ve had 38 posts on this site and you’re not a rep and don’t have a lot of experience. What is it exactly that you do do?[/quote]
You don’t know who “Freeway” Rick Ross is? Where did you sped the 80’s.
Yet, by your own admission, Bobby, you know that non-registered reps are here reading the information and sometimes posting. Bobby, if I’m not mistaken, we are on the exact same board participating in the exact same thread in which someone has admitted to not being a registered rep.
Bobby will your broker/dealer allow to post on this board without approving each post, knowing that there is no requirement that one be a registered rep to post on this board and the general public can read what you post?[quote=anonymous]
"No. Not all annuties automatically come with the guaranteed death benefit rider. If you get an old plain jane annuity with $100,000 and it goes down to $50,000, then your beneficiaries are getting $50,000. You can add a guaranteed death benefit rider for additional cost to get that principal guarantee." You do realize that you are making my point with this. An annuity that has no death benefit still has M&E charges. How can M&E compensate the insurance company for insurance risk in a contract that doesn't even have the possibility of insurance risk? [/quote] The M&E ratio that each person pays does not need to be insurance for that particular contract, its combined with each contract issued by the entire company. Annuities are issued by insurance companies that have term insurance, and disability insurance, who's policy holders do not pay M&E expense. January 2009, 100 $1 million term insurance claims are put forth to New York Life. You think New York Life is going to pay the beneficiaries $100 million worth of benefit with the money earned from the monthly term premiums those 100 people have been paying? Hell no, take it out of the M&E escrow account.Agreed on that the majority of the M&E includes the E. I was grasping at straws with the New York Life example. I do have a question that maybe you can give me your theory to. Do you think the insurance companies make more money off the M&E expense, the surrender charge from people who surrender too early, or from taking the money contract holders put into the fixed account and make more interest than the investors are receiving from it?
What is the legitimate chance that at least one, major, VA carrier goes Chapter 11 in the foreseeable future? Not sure if an AIG-type
bailout is in the cards again. It is, at least, a whole new wrinkle
here as it pertains to contract “Guarantees”.
Being that 4 of them applied to be bank holding companies, might be a reasonable chance of failure. Does C make it to Monday?
They’re making their money primarily on the M&E. Additionally, some of the money from the fund expenses are ending up in the insurance company coffers.
They aren't making money from the surrender charges. The surrender charges are primarily needed because most annuities are "B" shares. The company has paid the rep before they have earned the money. The surrender charges simply reimburses the company. Keep in mind that if the insurance company is getting a surrender charge, they are not getting years and years of earning 1% +. I would guess that they are making very little from people who are using fixed accounts. It usually doesn't make sense for a VA owner to use the fixed account especially considering that the bulk of VA sales have living benefit riders.If a major insurance company, like AIG, goes under in the foreseeable future, it wouldn't be because of the VA's. I do think the guarantees would be ok because, right now, the contracts are still assets, not liabilities.What is the legitimate chance that at least one, major, VA carrier goes Chapter 11 in the foreseeable future? Not sure if an AIG-type bailout is in the cards again. It is, at least, a whole new wrinkle here as it pertains to contract “Guarantees”.