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Deferred Annuities and Variable Life Insurance
"Insurance companies add trivial insurance benefits,
disadvantageous tax treatment Craig McCann, PhD and Dengpan Luo, PhD1
By definition, an Annuity is not an investment, it is a "stream of payments" better known as current income. A Deferred Annuity is a contract with a life insurance company that allows you to accumulate assets inside the tax deferred "wrapper" before the date you choose to exchange those assets for income. Once you exchange the accumulated assets for an income stream, you no longer own the assets, only the right to collect the income. Deferred Annuities may have a place in some investment portfolios, but have to be considered carefully in view of their usually heavy layer of costs. As life insurance contracts, all annuities, even so-called "low cost" annuities, bear some mortality and administrative expense that is not strictly investment related. In addition, the vast majority of annuities entail sizeable sales and distribution costs. Because of their relatively large cost burden, annuities often do not stack up well against other tax advantaged investment alternatives. In those cases where annuities are appropriate, give first consideration to lower cost providers, such as Aegon, Ameritas, Fidelity, TIAA-CREF, and Vanguard. For a brief, but still thorough, discussion of variable annuities you cannot do better than the presentation on the Securities & Exchange Commission's (SEC) site.
"The net result of equity-indexed
annuities’ complex formulas and hidden costs is
1 (C)2006 Securities Litigation and Consulting
Group, Inc., 3998 Fair Ridge Drive, Suite 250, Fairfax, VA 22033.
www.slcg.com
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