Seniors and retirees need to be aware of the dangers of investing in an Equity Indexed Annuity. Read on to find out how to protect yourself.
Millions of retirees are being duped into buying the latest high-cost, high-commission product served up by the insurance industry–Equity Indexed Annuities (EIAs). According to the Advantage Group, a St. Louis based research-consulting firm, sales of EIAs thru June 2003 totaled $7 billion dollars. I sincerely hope none of that money was yours!
It’s those of modest means who seem most susceptible to the EIA sales pitch. The average EIA investor is 58 years old and invests $36,150. Those who are traditional ‘CD’ savers who are dissatisfied with the low rates available recently are especially targeted.
I don’t issue this alert lightly. I am not an alarmist. The reason for my concern is that EIAs are such an ‘easy sale’ for professional financial salespeople. And unless you are a financial mechanic who can look under the hood to see how they operate, you may not realize the obvious disadvantages.
First, let me explain EIAs. They allow you to participate in the stock market ‘good times’ while being ‘guaranteed’ of earning a minimum of 3% during the ‘bad times’. In other words, it is supposed to give you the peace of mind of a Certificate of Deposit but the growth of the stock market.
As a result, EIAs are easy to sell. And with commissions as high as 10 or 12% of what you invest, insurance agents and brokers are motivated to recommend them!
Here are the main problems of EIAs:
They tie up your money for 7, 10, 12 years or more, limiting your flexibility.
If you need more than just a small portion of your money before then you will have to pay enormous surrender penalties that can be as high as 12%! You can lose principal because of these penalties.
EIAs are not regulated by the SEC or the NASD and any ‘guarantees’ are only backed by the strength of the issuing insurance company.
Most EIAs will put a ceiling on how much you can earn, no matter how much the stock market goes up. But that doesn’t mean you can earn the maximum amount because…
Many EIAs have an asset fee that is subtracted from the ceiling. A 2% asset fee is common. With a 10% ceiling and a 2% asset fee, you can never earn greater than 8% in any one year.
The insurance company determines the method of calculating the return. The result is that you lose control and could end up earning far less then the market index.
You may not earn the ‘guaranteed rate’ on the full amount you invest. Some only pay the guaranteed rate on 90% of your original investment and then only if you stay in for the entire 7, 10, or 12 years.
History also tells us that EIAs are not a very good investment. When you run the numbers, there are no ten-year time periods since 1975 where an EIA would have outperformed the S&P 500 index. Plus, you could access your money in an index fund any time you wanted without the automatic surrender penalties imposed by EIAs.
Think about it from the insurance company’s point of view. They know that by capping your return at 10% that they can make more than enough in the good years to pay you 3% in a couple of bad years. Plus, they get 2% of each year’s return as well!
A 3% minimum appears good today but you will probably feel differently when interest rates go back to 5%, 6% or 7%. If you didn’t feel comfortable investing in the stock market when interest rates were 6% then don’t invest in the market now. Your ability to sleep at night is more important then the chance of earning a few extra bucks.
So here’s the bottom line, in my opinion. If you are looking for income, don’t invest in an Equity Indexed Annuity. If you are investing for long-term growth, don’t invest in an Equity Indexed Annuity. Quite frankly, I cannot think of anyone who would benefit from owning one.
For more information go to http://www.guardingyourwealth.com. Send me your questions and concerns. Email me at jeff@guardingyourwealth.com
Nationally-syndicated financial columnist and Certified Financial Planner® Jeffrey Voudrie provides personal, in-depth money management services and advice to select private clients throughout the USA. He’ll answer your financial question – FREE at http://www.guardingyourwealth.com
Filed under Home Insurance by on Apr 25th, 2010. Comment. 
How much would it cost to rebuild my townhome ? an Insurance quote question.?
I am buying a townhome for 215K and it has a association which has insurance to covers outer part. As home owner I need H06 policy to take of interior and my personal property.
I am closing next week and need to buy a home insurance and whenever I am getting quotes everyone is asking me what value you want for home replacing coverage to be. They are asking home much would it cost to rebuild my townhome, how would I know this.
Here is the scenario:
Its a PULTE built 2004 construction and was sold around 300K in 2004 for first owner, now since prices have come down I am getting the townhome for 215K.(3 bed, 2.5 bath,2 car garage,basement, 2 story,2000 Sft.), its in Chicago suburbs (Schaumburg IL).
So how would I know how much would it cost me to rebuilt incase of a full fire damage to the home, since I own the land I can reconstruct I guess.
Any approximate dollar amount as how much would it cost to rebuilt ?
$100 per square foot is certainly a safe way to go. But it may depend on the cost for the insurance and all of the provisions in the policy. If there is a substantial difference in cost for the insurance if you are at $100 verses $90 per square foot, then you will want to come as close as safely possible on the number you plug in. Knowing nothing about the construction business at all and going back to the original cost of 300K that’s only $150 per square foot. But included in the 300k is the cost for the land and the shell, or exterior, as well as costs for marketing or real estate fee’s and builders profit. The actual cost for only the interior will obviously be substantially less than the $150 number. $100 per square foot would be more than safe.
However you will want to check the policy to see what if anything is allowed for clean-up and removal of the fire damaged materials. Typically coverage for this will be included and is in excess of the per square foot figure you must provide. If this is something that is not included then talk to the insurance provider (they should have adjusters that can give you a very accurate number) to find out what the standard amount would be and adjust your square foot number accordingly to allow for the initial clean-up phase before reconstruction can begin.
The best way to get a really close square foot number, should it be necessary, would be to simply call a few builders in your area, and pick one of their numbers at the higher end of the range.
Filed under Home Insurance by on Apr 11th, 2010. Comment.
What do you feel about TX being the 1st state to allow employers to have access to employee health records?
It’s supposed to be only for the purpose of allowing the employers to shop for better insurance, but there are so many loopholes I’m concerned. Supposedly mental heatlh records and hiv test results aren’t given to the employers though.
March 15, 2008, 11:44PM
Access to health records bolstered for employers
By L.M. SIXEL
Copyright 2008 Houston Chronicle
http://www.chron.com/disp/story.mpl/headline/metro/5623062.html
a snippet of the article…
Now, the Texas Legislature has become the first in the nation to force insurance companies to pass along sensitive employee health records to their companies, a practice permitted under federal law.
Starting Jan. 1, companies became entitled to receive a list of their employees and family members — identified by number or some other code, but not by name — whose health bills exceeded $15,000 during the previous year.
not a good idea then employers can have all your personal information..
Filed under Health Insurance by on Apr 7th, 2010. Comment.