Tuesday, May 17, 2005
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
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
