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Should You Exchange Your Variable Annuity?

Reuters’ Linda Stern is wondering “Are old variable annuities the best?” in her article published in The Baltimore Sun.  Although some insurance companies have stopped selling variable annuities and sales are down, assets are $1.61 trillion, an all-time high.  This is likely because many people are holding onto variable annuities that they purchased years or even decades ago.  These products gained money this year when the stock market increased and are probably past the period of surrender charges.  If you have one of these older variable annuities, you may wonder if you should keep your old product or transfer to a new annuity product.

Stern finds that older variable annuities can be a better deal for some who own them.  In the 1990’s and 2000’s, you got a lot more for your money when it came to variable annuity purchases.  If you have guaranteed living benefits, promised value step-ups, and costs around .25%, you may want to hang onto your current product.  The economy forced insurance companies to offer less benefits for more money so that they could stay in business, but there are still good variable annuities with living benefits out there.  If you are not satisfied with your current product, it could definitely be a good time to shop for a new variable annuity.

Reassess the insurance company holding your variable annuity and make sure that they are still financially sound and can keep the promises of your annuity contract.  Look closely when comparing the fees of new and old variable annuities.  Newer products charge more for your benefits, but the underlying indexes may actually charge less in management fees.  There are different generations of annuities based on the time frame in which you purchased your variable annuity.  Speak with an expert to find out the specifics based on whether your annuity was purchased in the mid-1990’s, 2007-2008,2009, or some other generation.  If you do decide to transfer annuities, a 1035 exchange will allow you to transfer to a new annuity without tax penalties.

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