Investors are discovering that their contracts have more moving parts than a sack of Swiss watches. And the single-spaced small print with impossibly long, wordy run-on sentences of stale legalese and confusing insurance lingo makes as much sense to most civilians as a toxicology report of a deceased cancer victim.
I'm convinced the serpentine complexity of these contracts is inversely related to the enthusiasm and avarice of their salespeople. Meanwhile, VA annual reports, twice the size of your Cleveland telephone directory, weighing about 4 pounds, are equally puffed with fancy words and mind-bending columns of dizzying numbers and calculations. Millions of reports are mailed to policyholders every year, and millions are never read. And watching the physical production of these reports is as fascinating as watching the annual salmon run below Oregon's Savage Rapids Dam.
There are some darn good VAs but plenty of bad ones, too. Most salesmen are reluctant to disclose the 5 to 14 percent commission costs because it might queer the sale. VAs have annual fees of 3 percent or higher (mortality, management costs and other expenses), causing unattractive short-term performance. So salesmen are reluctant to disclose this fee, too, because it might nix the sale. And when an impatient or disappointed investor cancels his contract early (must be held for 10 years), he's shocked to discover penalties exceeding 10 percent, which most salesmen are reluctant to disclose because it might foil the sale.
If you purchase a VA, plan on keeping it for at least 15 years. And if you select a VA with a superior annuitization rate, it can be an impressive complement to your retirement income. Few investors know enough to ask about annuitization income, which can vary immensely among competing insurers.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com.