Insurance or Investment?
I can’t tell you how many times I have spoken to people who think annuities are such a great investment. Whether it’s a variable, equity index, or fixed product, the agent involved and the marketing material used paints a picture of guarantees and potentially high returns. But if you stop and think about it, how can the insurance company afford to offer such amazing guarantees while paying the agent a substantial commission? Been invited to any free dinner investment seminars lately? Typically, these are sales presentations of specific annuities. It only takes a sale or two to cover the steak dinner for all that attend.
We at Markowki Investments and the Annuity Education Center have a different take on annuities and what your premium is paying for. It is our opinion that annuities should be treated more as an insurance product. Think of an annuity as the opposite of life insurance. Life insurance benefits are paid when you die. This protects your family or beneficiaries in the event of an early death. An annuity will provide benefits to you so long as you are living. That is, you are insuring yourself against living a long life in which you could outlive your assets. An annuity will, or better put, should provide adequate income protection for the rest of your life.
This is an important distinction: insurance versus investment. It is our view that annuities don’t make much sense as an investment. Your potential return versus other traditional investments such as stocks and mutual funds are typically lower due to the high fees of the product. Therefore, as a CFP®, it is my job to select a product that will provide the best level of insurance (future income benefit) at the most reasonable cost (fees).