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Variable Annuities and Variable Life Products: Questions to As

Variable Annuities and Variable Life Products:
Questions to Ask

Variable annuities and variable life insurance products combine features of insurance and securities investments.  They can be an important part of your retirement and investment plans, but it is important to make sure they are right for you.  Recently the SEC issued a report on how these products are sold.  Based on the problems we’ve seen, here are some important questions we recommend that you ask before purchasing a variable product. 

  • Might I need this money in the next few years?  Variable products are long-term investment vehicles.  They aren’t appropriate if you’ll need your money in the short term because substantial taxes and insurance company charges may apply if you withdraw your money early.
  • Do I have enough money right now to purchase this product?  Because variable products are long-term investments, it can be dangerous to your financial health to mortgage your home in order to purchase a variable annuity or variable life insurance product.  If a salesperson pressures you to do so, call us instead at 1-800-SEC-0330.
  • Am I being urged to purchase a variable annuity or variable insurance in my IRA, 401(k), or other retirement account?  One key benefit to purchasing variable products is the fact that earnings on the invested money accumulate tax-deferred.  But these tax benefits are of no value if you’re purchasing the product in your IRA, 401(k), or other retirement account because those accounts are already tax-advantaged.  Make sure that the features you’re buying are worth the money you’re paying.
  • Does the firm recommend this product to all its customers?  Everyone has different investment objectives.  Variable products are not “one size fits all.”  Be careful if a salesman recommends one product to all customers.  That may mean the product isn’t right for you.
  • What will I lose if I exchange this product?  If a salesperson is urging you to exchange your variable product for a new contract, you’ll need to compare both products carefully, because:
    • the guaranteed death benefit of the new product may be less than the old,
    • you may have to pay a “surrender charge” to get out of the old product,
    • the new product may impose higher annual fees and a new surrender charge, and 
    • the new product may impose a new surrender charge period.

For more information on how variable annuities work and what you should know before purchasing, please read Variable Annuities:  What You Should Know.

 

We have provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.