Response: Investment Tricks – Annuity Style

October 31, 2010 by Sheryl J. Moore

Setting It Straight with CBS MoneyWatch

ORIGINAL ARTICLE CAN BE FOUND AT: Investment Tricks – Annuity Style 

Allan,

1. All earnings on indexed annuities are limited via the use of a cap, participation rate, or spread. The fact that gains are limited on indexed annuities is advertised blatantly by the underwriting insurance company, as this is how the insurer is able to afford to pay for the minimum guarantee on the contract. So, limited gains means a guarantee of never losing money because of market fluctuations. I think many of your readers would fine this value proposition quite palatable.
2. As I have explained many times before, the insurance company never receives the benefit of the dividends on the index on an indexed annuity, because the client is never directly invested in the index. The insurance company invests the indexed annuity purchaser’s premium payment in the general account, which protects them from declines in the index. The premiums are never invested in a pass-through account, which would provide the benefit of the dividends, but also expose the client to risk should the market decline. For this reason, the dividends cannot be passed on to the consumer. This is clearly disclosed on every indexed annuity contract.
3.  You do not understand the indexed crediting methodology on these products, despite my numerous attempts to educate you. Perhaps you should throw-in the towel.
4.  Indexed annuities are not intended to perform comparably to investments, much less the stock market itself. They are intended to provide principal protection, a minimum guarantee, and the ability to earn 1% – 2% greater interest than fixed money instruments. You are only fueling the few market conduct issues we have in this market, by alluding that indexed annuities allow you to earn “market returns without risk.” This is not how indexed annuities should be marketed and you know it. A more appropriate alternative would be to promote indexed annuities as a retirement income product that “allows the purchaser to have LIMITED participation in the stock market’s upside, while avoiding the downside risks associated with the stock market.”

Indexed annuities, their value, and their potential are real. Your understanding of indexed annuities is not. If I had a dollar for every misleading or inaccurate article you published on these products I’d be rich.

I only hope your readers find out how little understanding you have on these products you seem to be fixated on. Until they do, I will be here, setting you straight on indexed annuities.

Sheryl J. Moore

President and CEO

AnnuitySpecs.com

LifeSpecs.com

IndexedAnnuityNerd.com

(515) 262-2623 office

(515) 313-5799 cell

Originally Posted on October 31, 2010 by Sheryl J. Moore.