are annuties from insurance cos. a safe investment

by osceolarose » Sun Jun 14, 2009 06:52 pm

I have two. I am happy wiyh their performance but am worrying if they could fail in this economy

Total Comments: 20

Posted: Mon Jun 15, 2009 05:01 am Post Subject:

Your annuities are safer than you realize. There are so many reasons that an annuity is safer than most other investments, but here are a few.

1. Reserve Requirements - If you put $1 in the bank, they need to keep about 3 pennies of it on deposit and held "in reserve." An insurance company is required to keep dollar for dollar in reserve!

2. FDIC is a joke, and I don't want to start a big debate on it (Did you know they have 20 years to pay you back...and if the major banks failed they would just print more money making it useless!)...

The annuity is basically secured by each state's insurance division. There are a lot of components involved, but just know that if the insurance company goes belly up...you don't lose your money!

Look up Gary Spicuzza (sp?) and ask him if an annuity is safe...you'll get all the information you want to hear!

Posted: Mon Jun 15, 2009 05:24 am Post Subject:

I have two. I am happy wiyh their performance but am worrying if they could fail in this economy



What type of annuity plans are these?

Posted: Mon Jun 15, 2009 05:27 am Post Subject:

Hi osceolarose..

are annuties from insurance cos. a safe investment



I'd thank Chris for his detailed explanation. But at the same time I'd ask you one simple question-

What all investment options would seem safer to you than this one under the present downturn?

Steven

Posted: Mon Jun 15, 2009 04:52 pm Post Subject:

I have two. I am happy wiyh their performance but am worrying if they could fail in this economy



The answer to whether they are safe is "maybe".

If it is a variable annuity, there is lots of risk and the insurance company doesn't make much of a difference except for any guarantees that may be backed by the insurer.

If it is a fixed annuity, the safety will based upon a combination of the company strength and the amount invested.

Posted: Mon Jun 15, 2009 07:18 pm Post Subject:

What type of annuity accounts do you have? If they are variable, then they are subject to the whims of the stock market. Otherwise, fixed and indexed annuity accounts are quite safe.

They are backed by the full faith of the insurance company and the Guaranty Assoc in your state. Usually insured up to 100k per contract and 300k per household.

Posted: Tue Jun 16, 2009 02:28 am Post Subject:

Regarding Fixed Indexed Annuities:

"There is no asset category that outperformed them."
Professor David Babbel of Wharton speaking about index annuity returns
- Forbes 6 June 2009



Since 1995 when Fixed Indexed Annuities first hit the market, "There is no asset category that outperformed them."

The reason for this is because there isn't any downside risk of principal.

Gains are locked in and when the market is flat or down the worst thing that happens is the client receives 0% interest for that year.

A 25% loss of princpal (2001 crash) requires a 47% gain the following year to keep even with a boring annuity that's just limping along at 5% per year.

A 39% loss of princpal (2008 crash) requires a 80.73% gain the following year to keep even with a boring annuity that's just limping along at 5% per year.

A Fixed Annuity is the place to put your money after you've made your money and no longer want to risk your principal with the day traders on Wall St. playing stocks like a flea market swap meet.

Posted: Tue Jun 16, 2009 05:50 am Post Subject: Can one convert a variable annuity to a fixed one?

Can one convert a variable annuity to a fixed one when the VA isn't performing well?

Posted: Tue Jun 16, 2009 10:45 am Post Subject:

You can 1035 exchange:

Life Insurance for Life Insurance;

Annuity for Annuity;

Life Insurance for Annuity.

You CANNOT 1035 exchange an Annuity for Life Insurance.

Section 1035 of the Internal Revenue Code

Title 26 — Internal Revenue Code ("IRC")

Sub Title A — Income Taxes

Chapter 1 — Normal Taxes and Surtaxes

Subchapter O — Gain or Loss on Disposition of Property

Part III — Common Non-Taxable Exchanges

Updated: Friday, July 14, 2006

Section 1035 — Exchange of Stock for Property

(a) General rules --

No gain or loss shall be recognized on the exchange of --

(1) a contract of life insurance for another contract of life insurance or for an endowment or annuity contract; or

(2) a contract of endowment insurance (A) for another contract of endowment insurance which provides for regular payments beginning at a date not later than the date payments would have begun under the contract exchanged, or (B) for an annuity contract; or

(3) an annuity contract for an annuity contract.

Posted: Tue Jun 16, 2009 11:10 am Post Subject:

Can one convert a variable annuity to a fixed one when the VA isn't performing well?



Yes, but if this is your thought process, you are the type of person who should always be a long term saver instead of an investor.

It's ok to be a long term saver. It's ok to be a long term investor. If you go back and forth, you will get crushed.

Ex. Anonymous12 buys a VA with $100,000. The market takes a hit and his investment is now worth $60,000. He takes his money out and puts it into a fixed product that averages 5% a year. After 11 years, he still has less than the $100,000. If his money was getting 5% every year, he would have had $171,000.

People who go back and forth, buy high and sell low.

Posted: Tue Jun 16, 2009 11:13 am Post Subject:

Since 1995 when Fixed Indexed Annuities first hit the market, "There is no asset category that outperformed them."

The reason for this is because there isn't any downside risk of principal.



I don't know if it is true or not that there has been no asset class to outperform them. Do you have anything to back up that assertion?

It is true that there is no downside risk of principal.

It is false that the reason that they outperformed because of the lack of downside risk. Over most 10 year periods, equities will outperform them precisely because they do have downside risk. They outperformed because equities did so poorly.

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