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Question for the Money Doctors

Question submitted on Jul 16, 2011.

Question

An insurance salesman is doing a pitch in our area on indexed annuities. He has an office nearby and is on the local radio station every week talking about how to keep your money safer by not being IN the market but by benefiting when the market goes up but locking in gains when it goes down. He recommended 4 different products that sound very reasonable--5,7,10 year terms, no fees other than surrender charges, caps at 20-25% gain (ave 5-7% yield)some have a bonus for signing (7-9%). I guess the downside is that you don''t realize maximum gains when the market soar but not taking the hits seems too good to be true. What questions should I ask before committing some of my savings or retirement money?

Answer

Before you buy an indexed annuity you should ask the agent what your surrender charge period is (and what options you have during the surrender period), what the plan''s fees are (these are plan costs which you don''t see on your statement yet impact your performance), if plan fees and other plan provisions can change during the term of the annuity, and why this product is better than a traditional fixed annuity or other conservative investment choices.  Your agent, if knowledgeable, should be able to explain to you why this particular investment is appropriate for you and why it is better than another. 

If you really want to go the limit, ask the agent what his commission will be on this sale.  It could be shocking.

Numerous complaints about indexed annuities have been filed over the years with State  Insurance Commissioners because of fee charges, surrender charges, poor performance, and contract changes.  I would recommend checking with your State Insurance Commissioner to determine if there are any serious complaints filed in your state. 


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