Variable annuities are good investments - maybe

Annuities have become very popular investments over the last decade after overcoming a reputation as an expensive (high commission) and poor performing investment. Annuities are complex insurance contracts with an insurance company. There are basically two types, variable and fixed, with variable being the most popular. Variable annuity contracts may offer death benefit riders, which can provide a benefit for your heirs, and living benefit riders, which provide guarantees by the insurance company as to how much income you could withdraw from the policy later in a person's life. In the beginning years, fixed annuities were offered by insurance companies with the underlying assets of the insurance company supporting the annuity contract value. These products were profitable for the insurance company and commissions were paid to insurance agents.

Annuities have changed a great deal from being only fixed to having separate variable fund accounts and a variety of benefit features such as guaranteed minimum income for life benefits and guaranteed death benefits. Investors who have experienced two major bear markets during the last decade are looking for guarantees. Thus the popularity for investors who want exposure to the equity and bond markets, but want the principle protected in the form of insurance as provided by the financial strength of the insurance company.

Baby Boomers are especially attracted to the income for life riders to their annuity, in some cases allowing them to invest aggressively in the markets and be assured of not losing the lifetime income benefit if the markets suffer another negative cycle.

Again annuities are insurance contracts and can be complicated. Competing insurance companies are very creative in finding ways to make their product attractive and unique. Usually the focus is on the benefit features such as the guaranteed income rider benefit. It is amazing the number of variations that have been created, and complicated for an investor to decipher the differences in order to select the best option for him- or herself.

There is no one annuity that will be appropriate for every client's situation. It is important for an investor to work with someone that has access to a number of different insurance companies and their different products. A good professional will spend time identifying each annuity, its benefits and the attributes that best match the investor's goals and objectives before presenting the annuity to the client.

This article just touches the surface on the complexity of understanding all there is to consider when selecting an annuity. This is where you really need to have a trustworthy professional working in your best interest. One way to help is to use www.brokercheck.com to see if your consultant or agent has any past customer complaints. Also, you can educate yourself by checking out the FINRA (Financial Industry Regulatory Authority) Internet site - Click on "Investors," then "Protect Yourself," and under "Annuities and Insurance." You will find an article titled "Variable Annuities: Beyond the Hard Sell."

Cort Wilcox is a Vice President, Financial Consultant with D.A. Davidson & Co.

He can be reached at (208) 667-1212 or cwilcox@dadco.com. Visit his website at http://cwilcox.dadavidsonfc.com for more information on this subject.