"Oversight Needed on Equity-Indexed Annuities"

Q: I recently read an archived version of your article titled “Oversight Needed On Equity-Indexed Annuities” from October 24, 2005. In the conclusion, you mentioned that there are many better ways to achieve market returns with low risk. Could you point me towards a resource showing some of the options?...

Obviously with return comes risk. The appeal of the no loss guarantee of the Equity Indexed Annuities is strong. I would prefer to have the actual cost of that guarantee stated more clearly.

A: The problem with EIAs is that you must be very careful because the way they work is often not how they are explained. The costs can’t be determined, nor are there any actual performance statistics. Moreover, the insurance company can change the variables from year to year.

It’s like buying real estate with a partner, but you are the one that puts up all the money. Then the partner has complete control over what you make and can change it from year to year, since you’re pretty much locked in.

There’s absolutely no reason to buy a 20 year product. If you want to compare apples to apples, you must look at a 20-year period being in the market. It doesn’t matter what happens between year 0 and year 20, only where the market is at after 20 years.

Go back and look at the markets. You’ll find that there isn’t a single 20-year period in modern history where the returns were negative. In fact, the returns were very good.

Here is a link to a Special Report that will provide some background on how to determine if you need an advisor and if so, what to look for in one. You should find it very helpful:

A Special Report: Financial Self-Defense

Let me know if I can be of further help.

Your posted comments on this and other questions are welcome.
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