Mike, Stokwiz was saying that he usually doesn’t use living benefit riders, thus the income for life doesn’t have much meaning.     That piece of mind can ultimately cost the client tens of thousand or hundreds of thousands of dollars…unless this is equalized by the effect of the change in investor behavior.  The fees can easily change a 7% investment into a 5% investment.  Compounded over years, this is huge.

To answer the original question, VAs are for investors that want or need the advantages of investing in equities (probable higher returns over time) but can’t handle the negatives of investing in equities (primarily volatility).  There are more advantages and disadvantages in VAs but that is the base answer.

Couldn't you just buy ETFs for a client for capital gains tax efficiency and buy puts on the ETFs to give them downside protection for cheaper than the fees on a VA?  I would think the fees would be much more transparent to clients using something like this rather than the sundry fees in a VA.  Furthermore, you could take advantage of the long-run capital gains tax laws using this strategy instead of having to make all the gains subject to regular income tax like you would in an annuity. 

I wonder what types of strategies are these insurance companies are employing in their own portfolios that allows them to guarantee their separate accounts in order to provide these riders and rates of return for all these annuity holders?  Generally insurance companies are in the business of guaranteeing against catastrophic loss.  VAs seem to not be spreading risk to guarantee against catastrophic loss--they are trying to guarantee against short term market fluxuation.  I am just not sure that VAs in the accumulation phase are really fair ways to accumulate wealth when compared to many other strategies.  VAs may make sense for certain clients, but they seem to have been quite oversold.

I was thinking of times when an insurance contract would be appropriate for funding retirement and thought of one that is not often discussed.  Funding of a nonqualified deferred compensation plan for a company's top executives is one of those uses (at least for the sponsor).  Since the NQ assets that are deferred are technically a company asset until they are paid to participants, the company has to pay capital gains on any participant initiated trades in mutual funds.  Remember, NQ assets cannot be held in a tax deferred trust account since NQ plans cannot be funded according to 409a.   If they fund the plan with insurance instead of NAV mutual funds, participants can feely trade within the contract without causing capital gains that the sponsoring firm would otherwise have to report.      

[quote=Akkula]

Couldn't you just buy ETFs for a client for capital gains tax efficiency and buy puts on the ETFs to give them downside protection for cheaper than the fees on a VA?  I would think the fees would be much more transparent to clients using something like this rather than the sundry fees in a VA.  Furthermore, you could take advantage of the long-run capital gains tax laws using this strategy instead of having to make all the gains subject to regular income tax like you would in an annuity. 

I was thinking of times when an insurance contract would be appropriate for funding retirement and thought of one that is not often discussed.  Funding of a nonqualified deferred compensation plan for a company's top executives is one of those uses (at least for the sponsor).  Since the NQ assets that are deferred are technically a company asset until they are paid to participants, the company has to pay capital gains on any participant initiated trades in mutual funds.  Remember, NQ assets cannot be held in a tax deferred trust account since NQ plans cannot be funded according to 409a.   If they fund the plan with insurance instead of NAV mutual funds, participants can feely trade within the contract without causing capital gains that the sponsoring firm would otherwise have to report.      

i think the question is a valid one.  nobody knows how all these living benefit riders will play out 15-20 years from now if many of them indeed are exercised.  i do not pretend to know everything, but who is the annuity “expert” who criticized VA’s for obnoxious expenses but within the last 2-3 years came out and admitted they are likely underpriced now when you consider the living benefit riders?  i imagine many of you have read his research report concerning this issue. 

i do not pretend to know everything, but who is the annuity “expert” who criticized VA’s for obnoxious expenses but within the last 2-3 years came out and admitted they are likely underpriced now when you consider the living benefit riders?

[quote=theironhorse]i do not pretend to know everything, but who is the annuity “expert” who criticized VA’s for obnoxious expenses but within the last 2-3 years came out and admitted they are likely underpriced now when you consider the living benefit riders?

[quote=snaggletooth][quote=theironhorse]i do not pretend to know everything, but who is the annuity “expert” who criticized VA’s for obnoxious expenses but within the last 2-3 years came out and admitted they are likely underpriced now when you consider the living benefit riders?

[quote=snaggletooth][quote=theironhorse]i do not pretend to know everything, but who is the annuity “expert” who criticized VA’s for obnoxious expenses but within the last 2-3 years came out and admitted they are likely underpriced now when you consider the living benefit riders?

No, the difference is I can always move a client into an annuity if tax rates change.  Without paying a surrender charge, you cannot generally go the other way. 

Akkula, you seem to be missing the fact that the overwhelming majority of VA money is qualified money so tax law changes as they relate to non-qualified assets are meaningless to the conversation.