Rick Kahler does a great job discussion the Variable Annuities in this article.
Steve
Many investors, panicked by the market crash of 2008-2009, started a search for some type of investment vehicle to protect them from the next market downturn. Some decided the answer was a variable annuity with a “guaranteed living benefit” rider.
At first blush, this seems to be a good use of insurance. For a nominal cost, insurance helps us spread the risk of a catastrophe. Consider auto insurance. There is a very small chance I will total my car in the next year. It’s hard to predict whether that will happen, but one thing is sure, it is all or nothing. Either I will or I won’t.
However, predicting the number out of a large group of people who will total their cars becomes much easier. While we don’t know who will total their cars, we do know about what percentage of people will. This predictability allows an insurance company to determine the average number of claims and set an annual premium that covers the anticipated claims and generates the company a profit.
See the complete article here: Rick Kahler: Annuity insurance For Market Crashes Has Risks | Kahler Financial Group.
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