Equity Indexed Annuities Under Fire---It's Not the Vehicle Stupid

There has been much controvewrsy over Equity Index Annuities as of late. But the probelm ISN'T the vehicles for the most part...It's that agents and consumers have no clue of what the intentions of these vehicles are. Let me make this very simple...

I have stated NUMBEROUS times that the equity index annuity is NOT designed to give market like returns...Nor is it designed to be a market vehicle. It is simply designed to attempt to outperform the FIXED markets by 1% or maybe a little more.

So what is the scrutiny? The problem is that many agents are selling these as market vehicles---telling the consumers they will OUTPERFORM the market and things of that nature. They either don't know or don't understand. AGAIN THAT IS NOT ITS INTENTION.

A conservative investor who would like to try to benefit from upswings in the market without getting hurt by the dwonswings may be one person who can take advantage of this vehicle. However, an investor looking for market like returns is SURE to be UPSET by this vehicle should he be in one when the market has a strong run.

I go crazy over this concept because most people just DON'T get it. And reporters are so EXCITED to write about it. The article below is written by Janathan Clements of the Wall Street Journal. The end of the article talks about how 'Over the 30 years, the equity-indexed annuity would have delivered just 5.8 percent a year, far below the 8.5 percent for the S&P 500 without dividends and the 12.2 percent for the S&P 500 with dividends reinvested.' Yes, but the equity annuity investor would have taken ZERO market risk.

People are missing the point. I am not here to defend EIA's or say they are good. But call a spade a spade for goodness sake. Understand what you are talking about...this means agents, consumers, AND REPORTERS. Here is the article in full detail. I got it from http://www.fortwayne.com/mld/journalgazette/business/13456484.htm

Just see if you can now see why articles like this drive me crazy...

Getting going
Insurance firms question sales of indexed annuities
By Jonathan Clements
Wall Street Journal

One of the insurance industry’s hottest products is coming under fire – from insurance companies.

Sales of equity-indexed annuities have soared, hauling in $23 billion in 2004 and an additional $21 billion in the first nine months of this year, according to annuity tracker Advantage Compendium. These products aim to capture part of the stock market’s gain, while guaranteeing that investors will at least break even or earn a modest return. That mix of upside potential and downside protection has proven especially popular with seniors.

But even as EIAs attract a heap of assets, they have also attracted a heap of criticism for their mind-boggling complexity, potentially poor performance, the 9 percent and 10 percent commissions often paid to salesmen and surrender charges that can last for 10 years or more. Sound bad? Even insurance executives are complaining.

Equity-indexed annuities have been feeling the heat all year. In June, New Jersey limited the surrender charges on tax-deferred annuities sold within the state to 10 years or age 70, whichever is longer.

In August, the National Association of Securities Dealers recommended that broker-dealers tighten their procedures for supervising equity-indexed annuity sales by their financial advisers. Last month, the Massachusetts Securities Division filed an administrative complaint alleging that a broker-dealer failed to supervise its advisers, leading to “unsuitable sales,” including selling equity-indexed annuities with long surrender charges to seniors.

Meanwhile, there have been a spate of lawsuits claiming EIA sales abuses. In Florida alone, two class-action lawsuits and more than 40 individual lawsuits have been filed by Fort Lauderdale law firm Gordon Hargrove & James.

Of course, lawsuits and regulatory actions are nothing new for an insurance product. Instead, the big surprise has been the sniping within the usually tight-lipped insurance business. The biggest sellers of equity-indexed annuities are mostly midsize insurers. Many big, well-known companies have steered clear of the product – and their executives are often more than happy to explain why.

“These products are so complicated that I think it’s a stretch to believe that the agents, much less the clients, understand what they’ve got,” contends Rebekah Barsch, vice president of investment products at Northwestern Mutual. “The commissions are extreme. The surrender periods are too long. The complexity is way too high.”

Another major insurer, MassMutual Financial Group, has even sent a four-page analysis to its salesmen, detailing the company’s concerns. The insurer looked at how an annuity based on the Standard & Poor’s 500-stock index would have performed over the 30 years ended December 2003.

In its calculation, MassMutual assumed that annuity investors would have at least broken even in any given year and that they didn’t get any benefit from the S&P 500’s dividends – both common features with EIAs. MassMutual also assumed that the annuity had a 9.4 percent annual cap on returns. Equity-indexed annuities typically impose some limit on an investor’s annual gain.

Result? Over the 30 years, the equity-indexed annuity would have delivered just 5.8 percent a year, far below the 8.5 percent for the S&P 500 without dividends and the 12.2 percent for the S&P 500 with dividends reinvested

“There’s a high chance that you could have dissatisfied customers, and that’s not good for anyone,” says MetLife President Robert Henrikson. “We have no desire to” bring out the product.

So far, many major insurers have made the same decision. Peter Katt, a fee-only insurance adviser in Mattawan, Mich., looked at a list of the 10 insurers with the biggest equity-indexed annuity sales over the three months through Sept. 30.

“You don’t see New York Life, MassMutual, Northwestern and Guardian Life on the list,” he says. “Those are the quality companies. And they aren’t selling them.” In fact, ING Group is the only big seller of EIAs that ranks among the 20 largest U.S. life insurers based on 2004 assets, as calculated by A.M. Best.


Out-----Tony Bahu
Author of 'Annuities: The Shocking Truths Revealed'
http://www.AnnuityMD.com

Annuity Death Benefit

One of the greatest things about what we do with our annuity information is showing people what to be careful of up front. With annuities, you can never be too sure unless you do your homework. You need to see what features you want your fixed or variable annuity to have and make sure you know them well.

One thing we stress in 'Annuities: The Shocking Truths Revealed' is that when you buy an annuity, you must make sure that 100% of the proceeds should be available at death, unless for some reason this purpose doesn't serve you. But that way, no matter how old you are, you can get into an annuity and be assured that you can enjoy its benefits while you are alive, and make sure that your family gets 100% of the money upon your death.

Well, quite often, everything we write about eventually makes the news. Meaning, the things we warn people about, the news all of a sudden discovers and makes a big deal out of it. Hey, we have been warning people about these things for years. Had they just bought our annuity information, they would have figured it out much sooner.

So the latest discovery about annuities is exactly what we are talking about. Seniors getting into annuities at an old age and t100% of the principle NOT being available at death...we've been warning you about this since day 1. So read this article that I think is very important. Understand it. And when you are looking for reliable damn good annuity information, please check us out!!!

FOR RELEASE: October 7, 2005 (#091)


INSURANCE COMMISSIONER JOHN GARAMENDI CALLS ON INSURERS TO ADOPT “SUITABLE STANDARDS” GOVERNING THE SALE OF ANNUITIES TO SENIORS

Complaints to the Department of Insurance highlight dangers seniors face; many have been sold annuities that won’t pay off until long after the senior’s life expectancy

SACRAMENTO – Responding to complaints about inappropriate sales of annuities to California seniors, Insurance Commissioner John Garamendi issued a letter today to California life insurance companies urging them to develop suitability standards for the sale of annuity products to seniors.

The California Department of Insurance (CDI) has received numerous complaints about problems resulting from annuities sold to seniors, including the practice of selling products that provide no benefit until after the purchaser’s life expectancy. Other problems include nondisclosure of tax consequences; unexpected surrender charges; and loss of death benefits or other types of benefits when selling a deferred variable annuity.

“Insurers, brokers and agents owe it to their clients to deal from a position of honesty, good faith and fairness,” said Commissioner Garamendi. “While they are not explicitly required to set standards for the sale of annuities, I strongly urge them to do so for the benefit of some of the most vulnerable members of our society. The hard-earned savings of thousands of seniors is at stake.”

A Department-sponsored legislative measure, SB 192 (Scott) would require that the industry establish insurer suitability standards. The bill will be considered again next year. Additionally, the National Association of Securities Dealers (NASD) will also attempt to rein in sales practices for some annuities with Proposed Rule 2821—Sales Practice Standards and Supervisory Requirements for Transactions in Deferred Variable Annuities.

The rule highlights the need to disclose the complex features of such annuities, and the need for training of the sales force so that they are able to explain issues like suitability of the investment for seniors, the result of exchanges of other deferred annuities, tax consequences and surrender charges.

# # #


Please visit the Department of Insurance Web site at www.insurance.ca.gov. Non media inquiries should be directed to the Consumer Hotline at 800.927.HELP. Callers from out of state, please dial 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.



So there you have it. Just understand, this is one of MANY principles we talk about in the annuity book we offer. Again, to see our annuity book , please click on the 'annuity information' link above.

Ignorance 'Ain't' Bliss

Annuity News and Annuity Information

There is a good resource for annuity news and information that I thought I would tell you about. It seems to give good references to sites that have good resources. Check it out and we will keep an eye to see if good annuity help can be found there. IT can be found by clicking on the words Annuity News.

Annuities and the Economy

Well, it's no secret that we are going through tough times right now. Yes, oil prices are up and the economy is sluggish at best. Add a devastating hurricane in the mix and we could be in for some tough times. So what does this have to do with annuities? Well, annuities can be multi-faceted vehicles. Variable annuities can provide upside in good markets and downside protection (not a fan of for the most part). Fixed annuities can provide shelter from a falling market and declining interest rates. Equity index annuities can give a little of both.

Whatever the situation is, annuities may or may not fit. However, the point I want to make is, your investment strategy should not be based on fear or greed. Nor should it be based on the economy. It should be based on a well thought out plan. If annuities fit nicely in your plan, then use them. If they don't fit, then forget about it. However, it is important to constantly assess your financial situation. Find investment vehicles, and or proper annuities that can fit YOUR situation.

And last of all, always be careful of the optimistic economists that say the market has to bounce back...because it doesn't. Stock markets never do what we expect. Save some money for a rainy day and don't hesitate to be cautious with your investments. The same go for annuities. Tomorrow, I will be talking about how choosing the right annuities, especially in this type of economy, can be so critical.

Until then...

IGNORANCE IS NOT BLISS!

Yours Truly...

Hurricane Victims

I am sorry to take a short pause from writing about annuities, but I feel there is something more important to write about.

I would just take a moment to offer up my prayers to the hurricane victims. This was a tragic event and I hope you will take the time to contribute a little something for these victims. It is times like this where every little bit helps. If you don't know how to help, please go to:

Red Cross Donation Page

This is the donation form for the Red Cross. You can choose to make a donation specifically to this cause.

Thank you and my deepest prayers go out to these victims and their families.

Sincerely,

Tony Bahu

Annuity
Annuities
Fixed Annuities
Index Annuities
Immediate Annuities

Equity Indexed Annuities

Okay, so I am still getting many questions regarding the index annuity. And here is what you need to know.

First and foremost, it is a fixed annuity and not a variable annuity. This means under normal circumstances (no insurance company insolvency, holding the product until maturity), you won't lose money. In fact, they inherently have minimum guarantees meaning if you hold them until maturity, you will be guaranteed to make some money for the most part.

The next thing about the equity indexed annuity is that it is not designed to beat the market. In fact, under most circumstances, it will not beat a normal market over time. It is designed to beat the fixed markets under the right conditions by 1 to 2 percent. This means it is not for the investor who wants to take chances and isn't afraid to lose money. ANd it's not for the investor who wants all the upside. It is for the risk averse investor who wants a fixed annuity to perform better than the fixed markets.

Last of all, there are many choices when it comes to the index annuity. There are good and bad choices. But most importantly, what makes them so is what is right for you. Features are only as good as the need! So the best thing is to do your homework. That's the bottom line. IT is not a good idea to trust your annuity agent. IT is best to do your own research. IF you need help, go to AnnuityMD.com and see the information there.

Ignorance is Not Bliss.

Sincerely,

Tony Bahu
CEO
AnnuityMD.com

By the Way, I have been asked to post some resources for foreclosures so here they are:

Foreclosed Homes
Foreclosed Houses
Realestate Foreclosures

Annuity Information

I received this e-mail today:

"I'm tempted to buy your report, but I would like to know what your credentials and experience are in this area. How detailed is your article and are there any guarantees with refunds?
Thanks,"


This e-mail really caused me to want to answer. The reason is because I feel there is a lot of bad information out there on annuities. Here was my response.

I know you have hesitations as everyone does. However, we have been successful at educating consumers across the country and empowering them. What you want to know is that we will not try to sell you an annuity. Our goal is to make sure that you make the right decisions about your future. Furthermore, if you have any questions following the reading the report, you will have full access to our customer service who can answer all of your unanswered questions.

As for my credentials, I was involved in the financial industry for years. I specialized in the annuity arena and got sick of all the stories of how people got screwed by the insurance companies and their agents. My frustration led me to take notes about every aspect that consumers fell victim to causing them agony in their financial lives. Following the gathering of all this information, I put it in a book form and it was intended to be for my own personal use. My friend suggested I put it on the internet and the response has been overwhelming.

The bottom line is, there are only two types of annuity information available on the internet and they are both free. The first kind is all the positive information by the people who sell annuities. The second is all negative written by the media for the hype. Our information is the ONLY non-biased information on the internet and our goal is to EDUCATE and EMPOWER not to sell you an annuity or scare you. We don’t make money selling annuities and that is why we charge for our information. This is how we make our living!

So, it’s your decision. I am confident that we can help you avoid at least one mistake you may have made without our information. I hope I come across sincerely when I say this.

And as far as the guarantee, we had it on for a long time. Unfortunately, people in the industry abused it. We found we were getting returns from only people in the industry. They were curiosity seekers that were trying to take advantage of our information. Our satisfaction rating among non-industry people was almost at 100%. We instituted a customer support feature shortly thereafter and make sure everyone who buys the book gets exactly what they want out of it. That has proven better than any guarantee because we really care that our clients get the right information. We still sell about 30% of our sales to the industry. However, now since they know they can’t return it, we get rave reviews even from the industry. We have even put several industry professional’s testimonials on our page to show that anyone of any experience level can benefit from this information.

As far as details, it goes into all aspects of the annuity that you need to know about to make an educated decision. The list on the website is very comprehensive and we cover all of these areas.



I hope this helps.



Sincerely,



Tony Bahu

CEO

AnnuityMD.com


Annuities

Understanding Equity Index Annuities

Lately, I have been trying to research how people explain the equity index annuity. I have to tell you that most every description I read of it is wrong. People seem to misunderstand this vehicle completely and I don't know why. It is not that confusing, but unfortunately, the equity index annuity gets described wrong constatnly.

I recently wrote information on the equity index annuity. It is probably the most comprehensive and simple explanation of how ti really works. I have only had it as an upgrade to 'The Shocking Truths' book but I feel like I would like to have it as a stand alone.

I am asking for your feedback. IF you think you would appreciate to have this package available as a stand alone product, let us know by sending us a message at support@AnnuityMD.com. If the feedback is good, we will release this package as a stand alone. Again, it explains the EIA in a way nobody really has, and it comes with an audio cd highlighting the important points of the book and of The Shocking Truths book. I will soon let you know how the response is. Until next time...

Ignorance IS Not Bliss.

Tony Bahu

Forget Annuities...Let's Talk Babies!!!

Well, I am pleased to inform you that my wife and I had a healthy baby boy this morning!!! He weighed in at 8 pounds and 8 ounces. Hopefully this explains the lack of blogging over the past several days. I would like to also take this opportunity to thank you all for the wonderful e-mails you have sent us and the support you have given us! I know this is a newsletter about annuities, but our families are why we work hard and invest our money, right? Hopefully you always keep that in mind and keep your family first in life.

As for annuities, yes many new developments and we definitely need to catch up. I would like to clairfy some things that we talked about earlier regarding New Jersey and Allianz annuities. We will hopefully do that soon. And remember, for the whole truth about annuities, please visit us at http://www.AnnuityMD.com. Until then, thank you again for all of your support. Wishing you the best, and remember...

Ignorance AIN'T Bliss!!!

No Defined End of Term

Okay, so here is the situation. The attorney general in the state of New Jersey is cracking down. They are banning annuities that have what is called a two-tier annuity products and furthermore, they are looking to do the same with annuities that have surrender charges in excess of 10%.

Now, as far as two-tiered annuities, they have no defined end of term. This means that no matter how long you keep the money in, it has to stay in until you 1) stay in for a defined period and 2) take your money out over a defined period. It calls for two sets of action in order to free yourself of a surrender charge. It is somtimes not a great deal for the client.

One company who was hit by this legislation was Allianz. In fact, some of their products operate this way. As a result, some of their portfolio is allegedly being pulled from the state of New Jersey. This is very interesting news in the annuity industry seeing that Allianz is the biggest seller of equity indexed annuities in the country. If this trend carries over to other states, Allianz may certainly take a significant hit in sales.

One thing I would like to clarify is this. My biggest problem with two-tiered annuities is that many brokers have no clue how to explain these to their clients. Furthermore, what's worse is for the most part, they DON'T explain it to the client. Therefore, the client may hold the annuity for a long time and come to find out they must take their money out over an additional period (usually 5 years). THE WORST PART IS, no matter how long they hold it for, they will never be able to take out their money without going through the second tier (by withdrawing the money over a certain number of years) without being assessed a penalty. AGAIN, my biggest problem isn't the way they work---it's that clients don't know that's what they are getting in to.

Well, it looks like the regulators are finally starting to target the insurance industry. Again, not every two-tiered is bad but knowledge is power. Keep this in mind as you do your homework on annuities.

For more information on what you need to know about annuities, please visit:

Annuities: The Shocking Truths Revealed (please click on the link)

Ignorance Is NOT Bliss

The Annuity Industry Had Better Rethink This

I do believe that one of the problems in the annuity industry is that in order to sell fixed and index annuities, all one needs is an insurance license. That means, your annuity agent may not have ANY formal education in the financial arena...THAT'S SCARY.

For you to entrust someone with that kind of money, and for him to have no financial education is a sin. Now, don't get me wrong, some of the agents are VERY well educated. But if you think of the new agent entering the market, they may have little or no experience with investing matters.

This to me is something the insurance industry should rethink. You see, fixed and index annuities (index annunities are glorified fixed annuities for lack of a better explanation at the present) do not have the stipulations that securities have on them. This leaves a lot of room more abuse and I truly think that should be changed.

The insurance industry should, without a doubt, require formal FINANCIAL training for someone who wants to sell annuities. I will say this forever and continue to push for it. Just trying to say that I believe it is necessary...that's all.

Out!!!

Ignorance IS NOT BLISS!!!

Tony Bahu

For more information on IRA's, please visit:

www.irasearch.info/ira-s.htm

Annuities in IRA's

Yes, this is the second time I am going to write about this topic. It warrants attention because I have seen it in the newspapers over the past several days. If you've read my opinion on this topic, please forgive me.

Butl, I have to tell you that it amazes me much stupidity surrounds the financial industry. Let me explain. I read article after article about people saying that annuities don't belong in IRA's because they are tax deferred vehicles in a tax deferred account. This is a statement that needs clarification.

Anyone who knows annuities knows that there are several benefits to owning an annuity (and some downsides too) and only one of them is the tax deferral aspect. There are safety benefits, beneficiary designation benefits, and benefits other than tax deferral. So it begs the question, 'is an annuity really a bad idea for an IRA?'

My answer is it depends. If someone is only looking for tax deferral and that is the reason he is buying the annuity, then it is obvious that it doesn't belong in an IRA. However, if someone is concerned with the other benefits of the annuity, then maybe it can go in the IRA and be a good idea.

My point is, it is not fair to make a blanket statements such as annuities don't belong in IRA's because it doesn't take into account the full picture. And if anyone knows me by know, you'll know that I am an advocate of designing the investment for the exact situation you're in. I don't believe in the investment theory that one size fits all...or the asset allocation models for that matter...who in the heck ever though of a 10 question interview that could determine where your assets should go...give me a break.

In order to determine what's right for you there are many aspects you and your financial advisor need to look at. I won't go over them because I have mentioned it before. But the bottom line is, if your situation calls for it, you can put an annuity in your IRA. It's as simple as that. Anyway, like I always say:

Ignorance is NOT Bliss.

For more information and strategies on IRA's, please visit:

IRA Search

The Other Problem with the Equity Indexed Annuity

Okay, so here is the other problem with the index annuity. Many agents try to sell it as the 'answer to all problems.' The fact of the matter is, it is not that at all. An indexed annuity is designed to have the potential to capture a little more upside than a traditional fixed annuity can.

Again, many agents claim it is a way to beat the markets...they will severely underperform in a good bull market. Furthermore, they are not designed to capture all the upside. They are designed to give a lower floor and a higher ceiling than traditional fixed annuities. They are by no means a stock market alternative.

So the bottom line is that the equity indexed annuity can be something desinged particularly to fit in someone's portfolio. It has advantages that other annuities cannot offer. It gives the protection of a fixed annuity. And it gives a little more upside than traditional safety vehicles.

All in all, it can be a good thing but it depends on an investor's situation. For someone looking for all the upside and who doesn't care about taking risk and losing money, the index annuity is far from the right choice. For someone who has a small risk tolerance but cares to have a little more upside potential, it can be a good choice.

The most important thing is to understand, any investment is part of a bigger equation. That is the bottom line. And furthermore, research is key. It is important to know what you are getting into. The further side of the spectrum is agents saying that EIA's are a scam. Those guys just don't understand how the EIA works.

Ignorance is Not Bliss.

Tony Bahu
CEO
AnnuityMD.com

The Problem with the Equity Index Annuity

Okay, so here is what I want to cover today...the problem with the equity indexed annuity. What do I mean by problem? Well let me explain.

When we think of the word equity we think of the stock market. And when we think of the stock market, many of us have a bad memory of the severe losses sustained in the recent market decline. Well, the problem is, the equity index annuity is a FIXED annuity. However, the name would have you think otherwise.

Now let me preface this by sating, not all index annuities were created equal. Some of them just flatout suck and end up really nailing the client to the wall. So before you go out and buy one, do your homework. But, here's something you need to know. Although the UPSIDE performance of an indexed annuity is based on some index of the market, it is a FIXED annuity. This means, barring any disasters, IF you hold it the full length of the term, you cannot lose money...in fact, you can only make money. Now, again, don't cofuse this with a variable annuity that invests in an index. I am talking about a fixed equity index annuity.

So to me, one of the biggest problems with the EIA is the name....Who is the idiot that called it that? I get more people asking me about that than any other question. Yes, the name is confusing and somebody should change it.

So you may think this is my personal issue, but I am honest in saying, it is the fact that it is so confusing for clients. The name has one believe that there is stock market risk involved. Now, there is one other huge problem with the index annuity. I am going to share that with you tomorrow. Please stay tune because this is a good one.

By the way, I never tout my product, but I think this time I will. The Shocking Truths Revealed is a book I wrote that really goes into detail about how people get hurt with annuities and how you can avoid these mistakes. IF you haven't seen it, go to http://www.AnnuityMD.com. It is worth checking out. And I wrote a follow up book which can be picked up as an upgrade STRICTLY on the equity index annuity. This is a must if you are thinking about these vehicles. Okay, that plug is over.

Thank you and remember,

Ignorance is NOT Bliss.

P.S. Here are a couple of more resources. I like to share them with you and I hope you don't mind:

Mortgage
Jewelry
Dimaonds

Stock Market Resources

Here are some stock trading resources also that some of you have requested:

http://www.stockmarketmd.com/stockmarketdaytrading/

and

http://www.stockmarketmd.net/stock-trading-investing.htm

Foreclosure Resources

Here are a couple of resources some of you asked me for regarding real estate foreclosures:


http://nomoneynocredit.com/foreclosure-information.htm

http://www.realestatemd.biz/bankrepos.htm

Yes, it's not annuity info but some people have requested this so here they are.

Out!!!

Living Benefit and Variable Annuities

Okay, so I was talking about the living benefit. I told you my position is that it can be very confusing. Incidentally, I got a call from an agent yesterday who was truly genuine and concerned to always do the right thing for his clients.

We got into a conversation about the living benefit. He told me of an annuity that would offer 12.5% return over a 20 year guarantee period. Now, this sounds wonderful, right? And a little too good to be true, right? On the surface, it looks like the client gets 12.5% per year if the market does not do well over a 20 year period. But here is how it really works. The guarantee is 12.5% of the amount you invest each year for 20 years. So if you put in $100K, you would be guaranteed $12,500 the first year and increases $12,500 per year until year 20 where your principal would be worth $250,000 in this case.

So the bottom line is that if the market didn't perform you would be guaranteed 250% of your original principal at the end of 20 years. Now pay attention. Here is how to see if the living benefit is worth paying for. First of all, the rate of return annualized for this type of return is around 4.68%. So let's initially compare that with any other 20 year rate of return...Hmmm....I think I could get 4.68% anywhere for 20 years on my money (probably for less time that that too). Furthermore, the chances of the market returning less than 4.68% over 20 years is slim to none. In the worst 20 year period, the S&P returned an annual average of 6.43% (according to http://www.mutualofamerica.com/articles/CapMan/October03/SandP500.htm.)

So logically, if you pay extra for this feature, it proboably doesn't make sense. Now seriously, there's always exceptions to the rule because anything can happen in the stock market. But if this feature cost you .50% and the annuity cost you 2.50% you now have 3% in expenses. And chances are you will never need nor use it so you have mitigated your returns and paid an extra $500 or more per year for 20 years in this case (hey $10,000 is a lot of money).

Living benefits are tricky and weighted heavily to favor the insurance company...not the client. Before you pay for a living benefit, analyze it in this way to see if it makes sense. Again, I am not against them completely, I just think you better understand them.

Ignorance is Not Bliss!!!

By the way, some of you have asked me for resources regarding the stock market. Here are two such resources:

Stock Market Basics

and

Stock Market Directory

Out!!!

Speaking of Variable Annuities

Here's an article where I was quoted. I would like to clarify what I meant here. Please read this first. It comes from Ignites.com:


Retirement Needs Spur New VA Products Article published on May 20, 2005 By Alison Sahoo
-->A growing number of variable annuity providers are introducing products and programs to help soon-to-retire baby boomers convert investments into income that will replace wage earnings.
New offerings include VAs with guaranteed minimum withdrawal benefits (GMWBs) for life and VAs marketed to holders of individual retirement accounts (IRAs).
Earlier this month, John Hancock enhanced its Principal Plus GMWB option for its Venture family of variable annuities, raising the guarantee period from five years to effectively cover older contract holders’ entire lifetime.
GMWBs protect investors against market volatility by allowing them to make systematic withdrawals from a protected value for a certain period of time.
Hancock’s move, says Manulife Wood Logan president Robert Cassato, was designed to expand upon the product’s strong sales momentum. Manulife Wood Logan provides sales and marketing support for John Hancock’s investment products.
Principal Plus was introduced in late 2003. In 2004, says Cassato, sales jumped 47% from the prior year and the rider was included in 50% of total sales. Now, the rider is included in about 80% of new sales.
The new lifetime benefit allows clients to withdraw up to 5% of their initial payment each year for 20 years regardless of market performance. It also guarantees payments for the life of contract owners who are 65 or older.
That gives retirees a steady stream of income and is especially important, Cassato notes, since less than 1% of all contract holders now convert their VAs into payment streams through annuitization.
The vast majority, he says, never realize the products’ intended benefit of receiving regular payments from their investment because they’re afraid that by annuitizing, they’ll give up their ability to access their full holdings should they need them.
“We’re so excited about this,” he says. “This comes at a time when baby boomers are looking to convert their nest egg into a pension and makes VAs the product of choice for the retiring generation.”
Principal Plus is priced at 30 basis points and the new Principal Plus for Life costs 40 basis points. Cassato says he expects most new business to shift to the enhanced option.
GMWBs were pioneered by Hartford in mid-2002, when the company launched its Principal First benefit. The rider allows contract holders to withdraw 7% of their investment principal each year until it’s exhausted. That usually takes 10 or 12 years and investors pay 50 basis points each year for it.
Last year, Hartford expanded its offering with Principal First Preferred. It allows investors to withdraw 5% each year, so payments are spread over a longer period of time. It costs 20 basis points.
Neither, however, guarantees payouts for the life of the contract holder.
Hartford vice president for annuity product development Rob Arena says that the company is focused on designing investment and income products to help retirees both accumulate assets and generate an income stream that will last their lifetime.
“With our variable annuity products, we are helping investors meet these needs by offering a broad range of asset allocation solutions to address their changing investment objectives and living benefits such as GMWBs for retirement income planning,” he says.
The company recently expanded its Director M variable annuity, adding six new investment managers and three new mutual funds.
Despite the growing popularity of GMWBs, however, some say that consumers should still be cautious because the products are complicated.
“The problem is the way that brokers and agents describe the guarantee,” says Tony Bahu, CEO of AnnuityMd.com and author of Annuities: The Shocking Truths Revealed. “Most of the time, the agent doesn’t explain it properly, so people aren’t aware of how they work. Investors should also do their own homework.”
Other VA providers are focusing on encouraging investors to use their products as an investment vehicle for their retirement accounts.
MassMutual, for example, has just launched a new campaign to help financial pros pitch VAs for retirement account rollovers.
Although the ability to defer income tax on gains from VAs duplicates that feature of qualified retirement plans, VAs offer some other benefits that can be very attractive.
Those include income benefits like the GMWB and death benefits that will protect the value of VAs from market declines for contract holders’ heirs. When the customer dies, heirs can receive the higher of the original principal paid in or the contract value on its highest anniversary, depending upon the option selected.
A spokesman for MassMutual could not provide further detail by press time.
According to the National Association for Variable Annuities (NAVA), net flows into VAs were $8.2 billion in the fourth quarter of last year, a 37.9% decrease from a year ago. That includes customer withdrawals and transfers. At the end of the quarter, there was $1.1 trillion in assets held in VAs. This represents a 7.2% drop from the end of 2003.

_______________________________End of Article

Yes, these living benefits are very tricky, and sometimes deceiving. I also believe they are explained so poorly by agents and the industry and that is what makes them so deceiving. Once again, I am not inherently against them (nor for them) but because I have seen so many people get burned by them, I am very leary.

Let me explain. Many people are never told that if the 'iving benefit' comes into play, in most annuities, there are strings attached. This means that there are limitations over how you can take your money. With that said, it comes back to haunt the client later.

Furthermore, the living benefit has a price to it. Factor that in with the cost of variable annuities, and you have yourself one expensive investment vehicle. If the market averages 9% over time and your expenses are over 3% and your living benefit guarantees you 6% return, do you see where that becomes a problem?

There is much more to it but I will get into it in the near future in more detail. Thanks for listenting.

For more information, visit:

http://www.AnnuityMD.com

Out!!!

Variable Annuities and Surrender Charges

Please consult with a professional before applying these strategies.

There are many of our subscribers who are involved with variable annuities. One of the biggest challenges with the variable annuity is once you've suffered large losses in the annuity. Why is that an issue? Because, variable annuities have a 'life insurance' policy built in. For example, if you put in $500,000 and over time due to market losses, your variable annuity is only worth $350,000, your death benefit is still the original $500,000. So if you surrender the annuity policy, you may alos surrender your $500,000 death benefit. That is a hard pill to swallow.

Well, what the insurance companies won't tell you is that there are different ways to 'wind down' your annuity without losing all of the benefits. In a variable annuity, there are different ways to calculate your surrender charges. It boils down to what is called dollar for dollar withdrawal versus pro-rata withdrawals. All this means is that, in dollar-for-dollar withdrawal, when you take money out, your death benefit gets reduced by $1 for every $1 you withdraw...where as in pro-rata, if you take out 70% of the money, it reduces the death benefit by 70%.

Now get this...if you have an annuity worth $350,00 with a death benefit of $500,000, and you have dollar-for-dollar withdrawal, then guess what? IF you withdraw $300,000 then you may still have a death benefit of $200,000. This works provided that you keep the annuity in-tact in this example. Therefore, you still have an annuity worth $50,000 with a death benefit of $200,000 and $300,000 (less surrender charges). Now, this is completely unadvertised by the insurance companies.

Furthermore, often times in SOME annuities, the surrender charge sometimes has a twist. For example, if you want to withdraw your entire amount, often times the surrender charge is assessed on the original invested amount. However, if you want to withdraw a portion, the surrender charge is assessed only on the withdrawal amount.

So here's the situation. IF you were in the predicament as mentioned above ($350,000 annuity with $500,000 surrender charge), you may look at this. IF it has dollar for dollar withdrawal, you can withdraw $300,000. If the surrender charge is 3%, instead of getting hit with a 3% charge on the $500,000 and losing your entire death benefit, you would get a 3% surrender charge on $300,000 and keep a $200,000 death benefit. In this situation, you would have saved $6,000 in surrender charges and you now have a $200,000 death benefit fully paid for for the rest of your life.

Now if you are starting to get this, you can see the value of it. Remember, this doesn't work for all variable annutiies, and ou should definintely consult with a professional before making these types of decisions, but I just wanted to let you know that there is a better way.

For more information, please visit:

http://www.AnnuityHome.net/annuities-variable.htm

Equity Index Annuities Continued

This is a continutation of commenting on the article from 4/25/05. All credits to the article are given there. The actual article is in black and my comments are in red.

Index Averaging
Some EIAs average an index's value either daily or monthly rather than use the actual value of the index on a specified date. Averaging may reduce the amount of index-linked interest you earn.

While averaging CAN reduce the amount you earn, averaging can also smooth out the ride. What averaging does is instead of measuring a starting and a finishing point, the insurance company takes the beginning value of the index on a specified date. Then depending on whether it is daily or monthly averaging, they average the value of the market based on the specific period. Then, they subtract the average value from the starting value.

The point is, yes, you are taking an average so if the market went straight up, the average would be lower than the final point. That is, if you take the average of 1, 2, 3, 4, 5, 6, 7, 8, 9, and 10 with 10 being the finishing point, the average is obviously lower than 10. However, the market went straigh up and stayed high, only to go below it's starting point after 1 year, point-to-point would give you no return where averaging would have a better chance in this situation.

Each has its benefits and like anything else, it may pay to diversify strategies.

Interest Calculation.
The way that an insurance company calculates interest earned during the term of an EIA can make a big difference in the amount of money you will earn. Some EIAs pay simple interest during the term of the annuity. Because there is no compounding of interest, your return will be lower.

Although this is true, check with your annuity. Most EIA's pay compounding interest. Particulary EIA's that have annual reset, which in my opinion is a MUST. Again, that is only my opinion. Your situation may vary and you should seek the help of a professional to determine what is right for you.


Exclusion of Dividends.
Most EIAs only count equity index gains from market price changes, excluding any gains from dividends. Since you're not earning dividends, you won't earn as much as if you invested directly in the market.

But you also can't lose money due to market risk like you can in the market. However, the fact that it doesn't pay dividends warrants attention. Dividends account for a good portion of the gains in the market so you should be aware of this.

Can I get my money when I need it?
EIAs are long-term investments. Getting out early may mean taking a loss. Many EIAs have surrender charges. The surrender charge can be a percentage of the amount withdrawn or a reduction in the interest rate credited to the EIA.Also, any withdrawals from tax-deferred annuities before you reach the age of 59½ are generally subject to a 10% tax penalty in addition to any gain being taxed as ordinary income.

Very good points. Always remember that annuities require time to be worth it. They can offer you more than a traditional CD can because you are offering them time on your money and that is the tradeoff.

Ignorance is not Bliss.

For more information and resources on annuities, go to:

http://www.AnnuityHome.com
http://www.MyAnnuitySite.com/annuities101/

Mortgage Resources

Here is a resource for mortgage information. You can get to it by clicking on the title of this blog or you can click below.

Mortgage Resources

Insurance Resources

Life Insurance, Disability Insurance, Long Term Care Insurance, and Health Insurance.

Good insurance is hard to find. There are many different resources to find insurance but how do you know where to go for it? Well, there is a resource that has many different links and articles all in one place. I see disability, health, long-term care, and life insurance on the site. Take a look at it and see if it will help you. For the main site, just click on the title. OTherwise, here are some of the other resources of the site.


Disability Insurance
Health Insurance
Long Term Care Insurance
Life Insurance

Structured Settlement Resource

Another structured settlement resource can be found by clicking the title. OR you can visit the link below.

http://www.annuitymd.net/ss/structured-settlement.htm

Real Estate Foreclosures

A little off of the subject here. Many of our clients have been asking for real estate foreclosure resources. There happens to be a site with foreclosure resources, links , advertisements, and news sources. Check it out and see if you like it. It can be found by clicking the title of this articles. Furthermore, you can find more information by clicking below:


http://www.myforeclosuresite.com/foreclosurehelp/

Thanks and we will be on the topic of annuities shortly. I will also provide a link for insurance resources other than annuities on my next post.

Again, for information on structured settlements, please visit:

http://www.structuredsettlementhome.com/buystructuredsettlement/

Structured Settlements

Just found a great resource on structured settlements. This site has resources, links, and newsletters on selling annuities, selling structured settlements, and getting cash for your structured settlements immediately.

Visit the site now by going to:

StructuredSettlementHome.com

or just click on the title of this article.

Thank you!!!

http://www.structuredsettlementhome.com/cashflowforstructuredsettlement/

Equity Index Annuities

Again, we are going over the article on 4/25 where all credits are posted as to the publisher of the article. My comments are in red.


Indexing Methods.

As described in the table below, there are several methods for determining the change in the relevant index over the period of the annuity. These varying methods impact the calculation of the amount of interest to be credited to the contract based on a change in the index.

1) Annual Reset

Compares the change in the index from the beginning to the end of each year. Any declines are ignored.

Advantage: Your gain is "locked in" each year.

Disadvantage: Can be combined with other features, such as lower cap rates and participation rates that will limit the amount of interest you might gain each year.

[This is the most popular feature and for the most part, it is highly advantageous. IT is because when you lock in a gain for the year, you can never lose that gain. This feature comes in bi-annual reset also. However, for the most part, annual reset can be a huge benefit.]

2) High Watermark

Looks at the index value at various points during the contract, usually annual anniversaries. It then takes the highest of these values and compares it to the index level at the start of the term.

Advantage: May credit you with more interest than other indexing methods and protect against declines in the index.

Disadvantage: Because interest is not credited until the end of the term, you may not receive any index-link gain if you surrender your EIA early. It can also be combined with other features; such as lower cap rates and participation rates that will limit the amount of interest you might gain each year.

[While this seems like a great feature, the insurance companies generally 'mitigate' your potential gains by putting many stipulations on this type of benefit.]

3) Point-to-Point

Compares the change in the index at two discrete points in time, such as the beginning and ending dates of the contract term.Advantage: May be combined with other features, such as higher cap and participation rates, that may credit you with more interest.Disadvantage: Relies on single point in time to calculate interest. Therefore, even if the index that your annuity is linked to is going up throughout the term of your investment, if it declines dramatically on the last day of the term, then part or all of the earlier gain can be lost. Because interest is not credited until the end of the term, you may not receive any index-link gain if you surrender your EIA early.

[Point to Point simply means they take a snapshot of where the index is at one point and a snapshot at another point sometime down the road (usually 1 year later) and determine if the market is up, down or flat in that time period. This is usually a pretty clean and straight-forward method. The disadvantage comes when a market stays high only to go lower when your 'point' is coming up]

We will continue this session on indexing in the next day or two. Thank you.

Ignorance is Not Bliss.

Click Here for Great Annuity Resources

My Annuity Site

There is a site with many resources for annuities. They have articles and many resources about annuities, fixed annuities, variable annuities, index annuities and more. Please feel free to check them out.

It can be found at:

http://www.myannuitysite.com

More Annuity Resources

Just another annuity Resource--Again, not a recommendation so take it or leave it!

Annuity Resource

Michael Jackson and Annuities

Okay, this may make some of you mad, but I had to do it. As I was thinking of Michael Jackson, the thought of annuities came to mind. Well, it sounds wierd but give me a sec.

I was thinking how some people get into an annuity and they think it is a great thing. Well, months or years later, they come to find out that on the outside, the annuity looked great, but the deeper they looked in to it, the worse it looked. In other words, looked good on the surface, but didn't look so great on the inside.

Well, that got me thinking about Michael Jackson. At face value, we all loved him. And many of us still do. However, if all of this stuff is true, then the product stinks. Hey, I am not the judge and nor do I presume that he is guilty or innocent. Only a select few will ever know the truth...

With annuities, however, there is a bright side. While on the surface, they may look good, you can actually do your homework and get a very detailed vision of what they entail. You don't have to wait until it's too late...if you take the proper precautionary measures. You can actually KNOW the product before you buy---Not by listening to your agent, but by doing your own homework.

So don't let your annuities fool you. Do the homework BEFORE you invest. Then you may not end up buying the wrong thing. Sorry for the bad analogy, but it was on my mind!

By the way, check out the only Annuity Forum on the Net. It's the link in the title. In other words, just click on the title of this document (Michael Jackson and Annuities) and it will take you there! It's actually quite cool.

For more in depth and detailed information on annuities, click here!!!

Ignorance is Not Bliss

Sincerely,

Tony B.

EIA Index Annuity Cont'd

We are still dissecting the article from 4/25. Full credits to the source of this article can be seen on the actual 4/25 post. This Equity Index Annuity article is in black and my comments are in red.


How is an EIA's index-linked interest rate computed?
The index-linked gain depends on the particular combination of indexing features that an EIA uses. The most common indexing features are listed below. To fully understand an EIA, make sure you not only understand each feature, but also how the features work together since these features can dramatically impact the return on your investment. [This is where the insurance company can limit your earnings. You need to be aware of these methods. What you need to understand is these insurance companies must put these safety measures in place. However, many companies (discussed further in 'Equity Index Annuity Exposed) are notorious for minimizing the amount a client can make in subsequent years after year 1. This is especially true with high bonus annuities.]

1) Participation Rates. A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index. [Not only do you need to understand this but you need to kow if this is a method your company subjects you to, you need to see what the minimum participation rate they can assess on your account. What I mean is that, each year, the company has the right to declare what your participation rate is for the year. Sometimes they can severely mitigate your potential gains by lowering this too much. Be careful]

2) Spread/Margin/Asset Fee. Some EIAs use a spread, margin or asset fee in addition to, or instead of, a participation rate. This percentage will be subtracted from any gain in the index linked to the annuity. For example, if the index gained 10% and the spread/margin/asset fee is 3.5%, then the gain in the annuity would be only 6.5%. [Again, one to watch out for...not just what it is the first year, but what the company can bring this down to]

3) Interest Rate Caps. Some EIAs may put a cap or upper limit on your return. This cap rate in generally stated as a percentage. This is the maximum rate of interest the annuity will earn. For example, if the index linked to the annuity gained 10% and the cap rate was 8%, then the gain in the annuity would be 8%. [This is probably the most common form of how the insurance companies control your potential gains. As we presently speak, this number is between 8% to 12% depending on how much time you are willing to commit to in your annuity. Once again, it is very wise to know how low this number can go. Presently, many companies are stating the minimum you can ever have your cap down to is 5% but I actually have seen a minimum allowed rate of 0%]

Caution! Some EIAs 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. [Most contracts give the insurance company the right to declare this every year. This is not unusual. It is wise to see the renewal rate histroy of the company you are choosing to see if they have been generous or not with their clients.]

[One more comment---I can't stress it enough. These safety nets have to be built in by the insurance company for their protection and for YOURS. However, it is up to them how they take advantage or abuse these rights. Some companies are extremely generous and these are the companies you'll want to deal with. Do some homework on renewal rates and you may find some pleasant and some unpleasant surprises!]

Ignorance is Not Bliss!!!

For more annuity information:

Annuity 1
Annuity 2
Annuity 3

Equity Index Annuities Cont'd

We are continuting our conversation on the article from 4/25 on the equity index annuity. All credits are given on that post fro 4/25. Once again, the article is in black and my comments are in red.


What is the Guaranteed Minimum Return?
The guaranteed minimum return for an EIA is typically 90% of the premium paid at a 3% annual interest rate. However, if you surrender your EIA early, you may have to pay a significant surrender charge and a 10% tax penalty that will reduce or eliminate any return. [There is really not a TYPICAL minimum guarantee. This can fluctuate across the board in indexed annuities. However, you need to know exactly what it is and how it is compounded. For example, if it is 3% on 90% of your money, most people make the mistake that you make 2.70% and that is NOT TRUE. The fact of the matter is that 90% of your money gets compounded at 3%. You might say that you will have less than 100% to start with and you are right. The point is, this minimum guarantee means that you MUST hold your contract for certain number of years to get some kind of return. But in fact, this kind of works like a surrender charge. In most, not all annuities, the minimum guarantee ACTS as the surrender charge. Think about it. If you surrender your contract in the first year, you would get 90% of your money---which is equivalent to a 10% surrender charge. REMEMBER---NOT ALL OF THEM WORK LIKE THIS SO BE CAREFUL AND KNOW YOUR EQUITY INDEXED ANNUITY by asking your financial professional.]

How good is this guarantee?Your guaranteed return is only as good as the insurance company that gives it. While it is not a common occurrence that a life insurance company is unable to meet its obligations, it happens. There are several private companies that rate an insurance company's financial strength. Information about these firms can be found on the New Jersey Department of Banking & Insurance's Web site. [There are many other resources for this. One unbiased resource that is highly regarded in the isurance industry is the Weiss rating. However, ratings aren't always enough. It is wise to do some homework on the insurance company you plan on investing with!]

What is a market index?
A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. There are indexes for almost every conceivable sector of the stock market. Most EIAs are based on the S&P 500, but other indexes also are used. Some EIAs even allow investors to select one or more indexes. [No big comments here]

Ignorance is NOT BLISS!

http://www.annuitymd.net/problems-with-annuities.htm
http://www.investmentmd.com/th/annuity/indexannuity.htm
http://www.annuitymd.biz/annuity/index.htm

Equity Index Annuities Con'td

This is a continutation of commenting on the article from 4/25/05. All credits to the article are given there. The actual article is in black and my comments are in red.

What is an Annuity?

An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. If the payments are delayed to the future, you have a deferred annuity. If the payments start immediately, you have an immediate annuity. You buy the annuity either with a single payment or a series of payments called premiums.

Annuities come in two types: fixed and variable. With a fixed annuity, the insurance company guarantees both the rate of return and the payout. As its name implies, a variable annuity's rate of return is not stable, but varies with the stock, bond, and money market funds that you choose as investment options. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Unlike fixed contracts, variable annuities are securities registered with the Securities and Exchange Commission (SEC). To learn more about variable annuities, read our Investor Alert, Should You Exchange Your Variable Annuity?

What is an Equity-Indexed Annuity?

EIAs have characteristics of both fixed and variable annuities. Their return varies more than a fixed annuity, but not as much as a variable annuity
[This is NOT TRUE---An Equity Indexed Annuity is a FIXED annuity and You can NOT LOSE MONEY IN IT as long as you hold it until maturity. In fact, like every other fixed annuity, an equity indexed annuity has a minimum guarantee and you are guaranteed to make some money if you hold it until the maturity date EVEN IF THE MARKET DECLINES CONTINUOUSLY]. So EIAs give you more risk (but more potential return) than a fixed annuity but less risk (and less potential return) than a variable annuity. [Again, this is false. Since an Equity Index Annuity is Fixed, It has the SAME risk as any other fixed annuity and you can't lose money like you can in a variable annuity. Unlike traditional fixed annuities, however, there is potential to make more money without taking any market risk by using the indexing options.]

EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. Because of the guaranteed interest rate, EIAs have less market risk than variable annuities. EIAs also have the potential to earn returns better than traditional fixed annuities when the stock market is rising.

Caution! Unlike variable annuities, EIAs are typically structured so that they are not securities registered with the SEC. Nor are the sales of EIAs regulated by the SEC and NASD. This means that non-registered EIAs are not subject to the customer suitability, disclosure, and sales practice requirements that registered securities are. [VERY GREAT POINT. There are much less regulation on these vehicles. This is a cause for concern. Let me point out that the real risk is there is much less regulation on the agents who sell them. Agents do not have to be securities licensed to sell these. So therefore, a regular old life insurance agent can sell these products. This can be a problem. However, these are still annuities, which means that they are insurance products. Therefore, they fall under regulations of the insurance industry. The insurance industry is a highly regulated industry and that is at least some consolation.]

Ignorance is NOT Bliss.

For more information please visit:
http://www.AnnuityMD.org/equity-indexed-annuities.htm

Equity Index Annuity Review

Okay, let us take a look at the article I posted on 4/25 on equity indexed annuities. I thought it was particularly good and what I would like to do is to take pieces of it and add some insight to it. Full credit is given to the source on the post and the link to the actual article is there also.

So here we go. The actual article is in black and my comments will be in red:

Why a Brochure on Equity-Indexed Annuities?

Sales of equity-indexed annuities (EIAs) have grown considerably in recent years. [Word has it that these vehicles may account for over 50% of all annuity sales in 2005] Although one insurance company includes the word "simple" in the name of their product, EIAs are anything but easy to understand. One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there is not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another. [Yes, leave it up to insurance companies to keep things simple---yeah right. Most insurance products are complex and this is no exception. There are many indexing methods and other 'moving parts' and this does create a lot of confusion when comparing these vehicles. Furthermore, there are many ways for the insurance companies to limit your gains so it is important to know what indexing method is used and what its advatages and disadvantages are. And for my true 2 cents here...Whoever called them 'EQUITY' index annuities wasn't thinking. That is the most misleading name in the world. When you truly know how these work, you will understand why I say this.]
Before you buy an EIA, you should understand the various features of this investment and be prepared to ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether an EIA is right for you. [Okay, let me be the first to shock you...Many professionals have no idea how the equity index annuity really works. That is not to take away from those who do. However, these are vehicles with many different features. On the surface, they all look good, but until you read the fine print, you may never know. This is where most people get caught. Even professionals in the industry get confused with these vehicles. How do I know? There are so many seminars for agents about how they really work and how to explain them and they are always packed. Furthermore, it is good to do your own homework. And it is even better not to take it for granted that your professional knows how they work. Do some research and examine whether or not your annuity agent knows how the equity annuity really works.]

Ignorance Is Not Bliss>>>>More to Come Each Day!!!

Other Resources

Just a couple of resources I would like to make you aware of. These are not necessarily recommendations, but just some places to give you insight. Take them or leave them!!!

Investment Resources

More Annuity Resources

Realestate and Foreclosure Resources
Realestate and Foreclosure Resources II

Stockmarket Resources
Stockmarket Resources II

Fitness Resources (A hobby of mine)

Equity Indexed Annuities

Great article I picked up on Equity Indexed annuities. This is from Quatloos.com and it came from http://www.quatloos.com/equity-indexed-annuities.htm. Even though it is from 2002, I find most of it, actually, almost all of it, still applies. I will be commenting on this piece frequently for the next few days. For now, please read this and absorb it. I would like to provide my commentary in detail. Thank you.

Equity-Indexed Annuities - A Complex Choice

January 16, 2002

Why a Brochure on Equity-Indexed Annuities?
Sales of equity-indexed annuities (EIAs) have grown considerably in recent years. Although one insurance company includes the word "simple" in the name of their product, EIAs are anything but easy to understand. One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there is not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another.
Before you buy an EIA, you should understand the various features of this investment and be prepared to ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether an EIA is right for you.

What is an Annuity?
An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. If the payments are delayed to the future, you have a deferred annuity. If the payments start immediately, you have an immediate annuity. You buy the annuity either with a single payment or a series of payments called premiums.
Annuities come in two types: fixed and variable. With a fixed annuity, the insurance company guarantees both the rate of return and the payout. As its name implies, a variable annuity's rate of return is not stable, but varies with the stock, bond, and money market funds that you choose as investment options. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Unlike fixed contracts, variable annuities are securities registered with the Securities and Exchange Commission (SEC). To learn more about variable annuities, read our Investor Alert, Should You Exchange Your Variable Annuity?

What is an Equity-Indexed Annuity?
EIAs have characteristics of both fixed and variable annuities. Their return varies more than a fixed annuity, but not as much as a variable annuity. So EIAs give you more risk (but more potential return) than a fixed annuity but less risk (and less potential return) than a variable annuity.
EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. Because of the guaranteed interest rate, EIAs have less market risk than variable annuities. EIAs also have the potential to earn returns better than traditional fixed annuities when the stock market is rising.
Caution! Unlike variable annuities, EIAs are typically structured so that they are not securities registered with the SEC. Nor are the sales of EIAs regulated by the SEC and NASD. This means that non-registered EIAs are not subject to the customer suitability, disclosure, and sales practice requirements that registered securities are.

What is the Guaranteed Minimum Return?
The guaranteed minimum return for an EIA is typically 90% of the premium paid at a 3% annual interest rate. However, if you surrender your EIA early, you may have to pay a significant surrender charge and a 10% tax penalty that will reduce or eliminate any return.

How good is this guarantee?
Your guaranteed return is only as good as the insurance company that gives it. While it is not a common occurrence that a life insurance company is unable to meet its obligations, it happens. There are several private companies that rate an insurance company's financial strength. Information about these firms can be found on the New Jersey Department of Banking & Insurance's Web site.

What is a market index?
A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. There are indexes for almost every conceivable sector of the stock market. Most EIAs are based on the S&P 500, but other indexes also are used. Some EIAs even allow investors to select one or more indexes.

How is an EIA's index-linked interest rate computed?
The index-linked gain depends on the particular combination of indexing features that an EIA uses. The most common indexing features are listed below. To fully understand an EIA, make sure you not only understand each feature, but also how the features work together since these features can dramatically impact the return on your investment.

1) Participation Rates. A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means the annuity would only be credited with 80% of the gain experienced by the index.
2) Spread/Margin/Asset Fee. Some EIAs use a spread, margin or asset fee in addition to, or instead of, a participation rate. This percentage will be subtracted from any gain in the index linked to the annuity. For example, if the index gained 10% and the spread/margin/asset fee is 3.5%, then the gain in the annuity would be only 6.5%.
3) Interest Rate Caps. Some EIAs may put a cap or upper limit on your return. This cap rate in generally stated as a percentage. This is the maximum rate of interest the annuity will earn. For example, if the index linked to the annuity gained 10% and the cap rate was 8%, then the gain in the annuity would be 8%.

Caution! Some EIAs 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.


Indexing Methods. As described in the table below, there are several methods for determining the change in the relevant index over the period of the annuity. These varying methods impact the calculation of the amount of interest to be credited to the contract based on a change in the index.

1) Annual Reset
Compares the change in the index from the beginning to the end of each year. Any declines are ignored.
Advantage: Your gain is "locked in" each year.
Disadvantage: Can be combined with other features, such as lower cap rates and participation rates that will limit the amount of interest you might gain each year.

2) High Watermark
Looks at the index value at various points during the contract, usually annual anniversaries. It then takes the highest of these values and compares it to the index level at the start of the term. Advantage: May credit you with more interest than other indexing methods and protect against declines in the index.
Disadvantage: Because interest is not credited until the end of the term, you may not receive any index-link gain if you surrender your EIA early. It can also be combined with other features; such as lower cap rates and participation rates that will limit the amount of interest you might gain each year.

3) Point-to-Point
Compares the change in the index at two discrete points in time, such as the beginning and ending dates of the contract term.
Advantage: May be combined with other features, such as higher cap and participation rates, that may credit you with more interest.
Disadvantage: Relies on single point in time to calculate interest. Therefore, even if the index that your annuity is linked to is going up throughout the term of your investment, if it declines dramatically on the last day of the term, then part or all of the earlier gain can be lost. Because interest is not credited until the end of the term, you may not receive any index-link gain if you surrender your EIA early.

Index Averaging
Some EIAs average an index's value either daily or monthly rather than use the actual value of the index on a specified date. Averaging may reduce the amount of index-linked interest you earn.

Interest Calculation.
The way that an insurance company calculates interest earned during the term of an EIA can make a big difference in the amount of money you will earn. Some EIAs pay simple interest during the term of the annuity. Because there is no compounding of interest, your return will be lower.

Exclusion of Dividends.
Most EIAs only count equity index gains from market price changes, excluding any gains from dividends. Since you're not earning dividends, you won't earn as much as if you invested directly in the market.

Can I get my money when I need it?
EIAs are long-term investments. Getting out early may mean taking a loss. Many EIAs have surrender charges. The surrender charge can be a percentage of the amount withdrawn or a reduction in the interest rate credited to the EIA.
Also, any withdrawals from tax-deferred annuities before you reach the age of 59½ are generally subject to a 10% tax penalty in addition to any gain being taxed as ordinary income.

Do EIAs and other tax-deferred annuities provide the same advantages as 401(k)s and other before tax retirement plans?
No, 401(k) plans and other before-tax retirement savings plans not only allow you to defer taxes on income and investment gains, but your contributions reduce your current taxable income. That's why most investors should consider an EIA and other annuity products only after they make the maximum contribution to their 401(k) and other before-tax retirement plans. To learn more about 401(k)s, please read Smart 401(k) Investing.

Is it possible to lose money in an EIA? [Tony's Comment: This is not Properly Explained---You CAN NEVER lose money in an EIA if you hold it until maturity since it is a fixed annuity---I will explain this tomorrow]
Yes. Many insurance companies only guarantee that you'll receive 90% of the premiums you paid, plus at least 3% interest. Therefore, if you don't receive any index-linked interest, you could lose money on your investment. One way that you could not receive any index-linked interest is if the index linked to your annuity declines. The other way you may not receive any index-linked interest is if you surrender your EIA before maturity. Some insurance companies will not credit you with index-linked interest when you surrender your annuity early.


If You Have Questions
If you have questions about EIAs, you can contact your state insurance commissioner. You can check out whether the person selling an EIA is registered with the NASD check their Web site or call their Hotline at 800-289-9999.

Additional Resources
NASD Investor Alert, Should You Exchange Your Variable Annuity?

National Association of Insurance Commissioners' Buyer's Guide To Equity-Indexed Annuities

Securities and Exchange Commission's Variable Annuities: What You Should Know


Ignorance is Not Bliss.

We will be discussing this document in detail over the next few days.

More Equity Index Annuity Resources at http://www.annuitymd.biz/annuity/index.htm.

American Marketing Insurance Leads---Better Read This First

Agents and consumers beware. American Marketing Insurance Leads may not be what they are cracked up to be. Let me share a story with you without getting into too much detail.

The hardest part of being in the insurance or annuity business is finding qualified prospects. Yes to all of you consumers out there, you are actually a commodity to the industry and being able to find you is a valuable game. Companies charge $20-$100 PER LEAD to agents willing to pay. Now, consumers don't be alarmed. The sales game in any industry is played this way.

Now, the problem is the quality of the leads is not always easy to determine unless you pay for some leads and test them out. American Marketing Insurance Leads claims that not only will they give you a lead, but they will set the appointment for you. Well, if this sounds great...you haven't heard the whole story.

When I was personally selling annuities, my corporation decided to use their services to see if they would work out well. Not only do did they overcharge us and NOT deliver the number of leads, they LIED to people blatently on the phone to get an appointment for us. We also had an incident where they actually promised the prospect that our agent would bring out a check for them just for meeting. It was embarassment after embarassment. Nonetheless, after experiencing this, we kindly asked for our money back and they promised they would send it and never did. $2,500 down the drain. They continuously lied to us telling us they would send the money but never delivered.

Oh, further proof...They had over 60 Better Business Bureau complaints last I checked. So if you are considering using American Marketing Insurance Leads, save your money...you'll be much better off.

By the way, here is an actual response to our complaints. This is how the Better Business Bureau said American Marketing Insurance Leads handled the complaint:


American Marketing Insu - CMPL NO: 10375610

Regarding the company you filed about
American Marketing Insurance Leads
269 South Beverly Drive, #1020
Beverly Hills, CA 90212

Although we have tried to obtain a response to your complaint from the company in the hope of reaching a mutually acceptable resolution, they have ignored our requests. We are, therefore, closing our file.

Your unanswered complaint will become part of the information we report to the public on this company for the next three years. Also, should any government agency request our files on this company, your complaint will be included.

If that isn't proof, I don't know what is. Unanswered complaints are not a way to build a long lasting business. Anyway, this is just my personal experience and I thought you might want to know. Good Luck.

Ignorance is Not Bliss.

Index Annuities

Index annuities are supposedly going to account for 50% of all annuity sales in the next year. Can you believe that? What is it about this annuity that has captivated the whole industry. Many types of annuities have come out in the past, but the index annuity has definitely been the one that has caught the most attention. So what is all the hype about?

Let me be the first to tell you that Index Annuities are not stock market alternatives. Nor are they designed to outperform the market. Index annuities are really designed to give you a little more potential than fixed annuities without the additional risk. The basic idea of an index annuity is to get a portion of the upside of the market and avoid the downside. It sounds too good to be true but it's really not. They don't give you all the upside and as a tradeoff you don't get the downside.

The problem with index annuities isn't the concept. It has boiled down to 1 of 2 things. First of all, there are agents that try to make them sound like the answer to all of your prayers. Well, some of them are good and have good features but they certainly have their limitations. Furthermore, some insurance companies give an unlimited upside the first year but bury information about how they are going to mitigate your gains later on in the contract years.

Perhaps the biggest problem with the index annuity is not the concept but how they are presented. First and foremost, if it is too good to be true, then it probably is. A good solid index annuity will give you good upside in the good years, protect you from the down years and lock in your gains every one to two years. Even in the contract, there may provisions built in to protect the insurance company, such as the ability to lower your upside, but don't let that scare you. A good company builds those in for the bad times and only lowers your upside potential if they absolutely have to. They do it for their protection AND FOR YOURS. The bad ones normally sound so good to lure you in and then lower your potential after the first year. These especially include the index annuities with huge upfront bonuses. So if it actually does sound to good to be true, then you may want to be extra careful. Good companies don't have to offer huge incentives or make it sound too good to be true to get you in.

As I always say, however, it is good to know what you are looking for before you go look for it. Do your due dilligence once you find it and make sure it fits your needs. Index annuities, the right ones, can be a great alternative to fixed annuities and CD's---but not for everyone. Always do your homework and know what you want and don't want and seek the help of a professional you can trust before making any decisions. Most importantly, please remember...

Ignorance is not bliss...

http://www.AnnuityMD.com

Annuity Resources

One thing that is hard to find is a good resource for annuity information. The problem is, most of the information is biased. The news media has all the negative information you could think of because that's what sells. The annuity sellers have all the good information so they can sell you an annuity. Therefore when looking for an annuity resource, you have to beware.

It is wise to do as much research as you can before getting involved...with anything. Make sure you know your source and the ulterior motive, if there is one. Always be on the lookout for what the hidden agenda behind the information is. And last of all, don't believe it until you see it. That means if you are buying annuities, see the contract regardless of what your annuity agent tells you about it. See it in black and white to believe it.

Ignorance is Not Bliss.


Sincerely,

Tony Bahu
CEO
AnnuityMD.com

For more annuity resources, please go to:
http://www.annuitymd.biz

Annuity Scams

Here is another article on annuity scams. This also involves the living trust mill. It was reprinted with permission from the Athertonian which is a newsletter for Atherton residents.

Message from Your Police Department: Living Trust Investments

The Police Department would like to remind Atherton residents to be cautious about a crime industry specifically designed to exploit the financial insecurities of one of our most vulnerable populations – senior citizens.

The Department has received several complaints about companies offering free home meetings to discuss identity theft, Medicare issues and “Living Trusts.” The concern is that these companies might be trying to sell inappropriate financial investments for some seniors, namely annuities. These “Living Trusts Mills” use scare tactics to pressure seniors into investing into these annuities, even though these annuities may make the seniors’ savings inaccessible for 15 to 20 years, carry severe tax penalties, have exorbitant “surrender charges,” and create complicated estate problems after death. The representatives of these companies misrepresent themselves as experts in estate planning and identity theft. They gain the trust and confidence of the victim, and then misuse that trust to discover the extent of the client’s assets under the pretext of determining whether the client can benefit from the living trust.

Please be wary of any uninvited solicitations from people or companies you don’t know or trust. One such company, The Gentry Group, has been ordered to desist and refrain from advising people or selling securities in order to buy annuities until they have secured certificates authorizing them to conduct business as investment advisors in California. This has not stopped them from contacting citizens of Atherton and offering them a home visit.

If you would like to report an incident of an inappropriate solicitation of a senior regarding these “Living Trusts Mills,” please contact the Atherton Police Department at 688-6500.

For more information, please read the brochure from the Federal Trade Commission at: www.ftc.gov/bcp/conline/pubs/services/livtrust.pdf

Ignorance is Not Bliss!

Tony Bahu
http://www.AnnuityMD.com

Annuity Scams and Living Trust Mills

Well, the other day, we talked about annuities and living trust mills. I just found this article on an annuity scam that has been unveiled and I think it is great that authorities are picking up on this now. I picked this up at the California Department of Insurance website.

This is one thing you NEED to be aware of at all times:

INSURANCE COMMISSIONER JOHN GARAMENDI SUES “LIVING TRUST MILL” OPERATORS FOR MORE THAN $110 MILLION

The defendants allegedly preyed on seniors, selling unneeded living trusts and annuities that bilked them out of hundreds of millions of dollars in retirement funds

SACRAMENTO – Acting to put an end to a massive “living trust mill” targeting vulnerable senior citizens, Insurance Commissioner John Garamendi and Attorney General Bill Lockyer filed a lawsuit Thursday seeking more than $110 million in penalties, restitution and damages from the operators of the scam.

“Using lies, trickery and outright fraud, these defendants took away the hard-earned savings of thousands of seniors who trusted them with nearly everything they had,” said Commissioner Garamendi. “I’ve attacked these types of predators by arresting them, through legislation, and with senior education. Now, I’m taking them to court to hit them where it hurts the most – the bottom line.”

The defendants in the suit include: Family First Advanced Estate Planning and Family First Insurance Services of Woodland Hills; Nick A. Michaels, president of Family First Advanced Estate Planning; John Owen, president of Family First Insurance Services; American Investors Life Insurance of Kansas; Group Legal Services of San Diego; Senior Law Practice Group; and attorney Thomas R. Lee of Woodland Hills.

An investigation by the California Department of Insurance Investigations Division found that the defendants tricked victims into purchasing tens of thousands of living trusts and related services, and mislead them into buying annuities worth hundreds of millions of dollars. The Woodland Hills-based firm had numerous locations, including a call center in Corona, and regional offices in Sacramento, Fremont, Concord, Santa Ana, Irvine, Canoga Park, Rancho Santa Margarita, Santa Maria, Westlake Village, Pleasanton and Bakersfield.

The complaint seeks to prohibit the defendants from continuing the practices and asks for more than $40 million in civil penalties and at least $70 million in consumer restitution and damages. The suit was filed in Los Angeles Superior Court.
Commissioner Garamendi has worked to fight this type of fraud since taking office in 2003. Earlier this month, due to legislation sponsored by the Commissioner, the Department of Insurance began collecting $1 for each life insurance or annuity sold in the state. The proceeds will go to support more enforcement and education on the dangers of insurance fraud involving these products.

The senior-related legislation Commissioner Garamendi has sponsored and helped pass includes:

· Senate Bill 1273 (Scott): Increases jail time to one year and monetary penalties to $25,000, or three times the amount of the loss above $10,000, for “twisting” or “churning” of annuities.
· Assembly Bill 2316 (Chan): Establishes the “Life and Annuities Consumer Protection Fund” by assessing up to $1 per each new individual annuity or life insurance product sold in California.
· Assembly Bill 2384 (Nakano): Allows the department to penalize insurance companies who don’t pay credit life and disability policy death benefits within 30 days of the date of a death.
· Assembly Bill 1600 (Nakano): This bill extends the period of time that life and disability insurers must maintain records relating to the activities of their agents and authorizes the State Insurance Commissioner to collect and report data relating to life and disability insurance. It enables the Commissioner to gather critical information about the life and annuity marketplace, particularly as it relates to senior citizens.
· Senate Bill 618 (Scott): Increases the fines for misrepresentation of insurance policies and increases the penalty for violations relating to the senior insurance law.

The Commissioner also strongly supported SB 620 (Scott), a new law which enacts additional restrictions on advertising practices that target senior citizens. It also expands the scope of existing restrictions to life insurance and annuities. The law also prohibits the sale of annuities to seniors in certain circumstances. Commissioner Garamendi is working to strengthen this new law with additional protections.

In the current case, the defendants tricked their victims through a complex business plan that used a multiple step process. They visited seniors under the guise of offering estate planning services. But in reality, according to the complaint, the defendants were using the meetings to gather information about the seniors’ finances and gain their trust and confidence. When life agents would later deliver the estate planning documents, they then used the financial information submitted for the documents to pitch unnecessary annuities.

Life agents would tell the seniors that their existing investments were no good, and then induce the seniors to close out their existing investments and purchase the annuity policies. The seniors would often do so, believing that the life agent had expertise in estate planning and was acting in their best interests. But investigators found that the life agents were really there to sell annuities in order to gain lucrative commissions, regardless of the damaging impact purchasing annuities had on the seniors’ financial situations.

The complaint also alleges that sales representatives never revealed the drawbacks of these products. For instance, many seniors, particularly those with serious health problems, would likely never be able to benefit from the annuities because the period of maturation was so long, in some cases 15 years. Early withdrawal of funds would precipitate heavy financial penalties.
Consumers who believe they have been victimized by the defendants, or by another living trust mill or annuity fraud, should report it to the Department of Insurance by calling 1-800-927-HELP, or visiting the web site at http://www.insurance.ca.gov/. They also may file a complaint online at the Attorney General's web site, http://www.ag.ca.gov/consumers/mailform.htm.
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If you feel you have been a victim of this type of annuity fraud or any other annuity fraud, please contact your local authorities.

Ignorance is Not Bliss

Tony Bahu

CEO

AnnuityMD.com

For more annuity scam information, please visit:

http://www.annuitymd.org/annuity-scam.htm