Over the past few years, variable annuities have gotten a bad rap in the financial markets. They still offer a lot of great benefits as an investment and some insurance companies are looking backwards to promote their variable annuities. According to The Wall Street Journal’s Leslie Scism, “A New (Old) Pitch for Variable Annuities” is occurring. The article compares fashion designers looking to past trends while planning their new designs with what is happening now in the variable annuity business.
Most recently, insurance companies were selling variable annuities based on a plethora of guaranteed extra benefits. Guaranteed minimum lifetime income riders and death benefits have been a big draw for variable annuity products since the early 2000’s. But as the markets declined in 2008 and 2009, insurance companies had to increase the prices of variable annuities and decrease the guarantees they were offering. It’s almost as if the reason variable annuities became popular in the first place was forgotten.
Not only do variable annuities offer tax advantages, they are a good way to get some alternative investments in your portfolio. These include currencies, commodities, real estate, private equity, futures, and options trading. Most financial advisors recommend that investors are diversified past traditional stocks and bonds because of volatile markets and low interest rates. Holding alternative investments in variable annuities allows taxes to be deferred and gives the potential for some good capital gains.
Variable annuities were first introduced in the 1950’s, with the introduction of lifetime income guarantees coming in the early 2000’s. Insurance companies had to worry about their own solidity after the 2008 market collapse, which brought increasing fees for these coveted lifetime guarantees. Sales have been solid, but haven’t reached the $180 billion peak from 2007. Jackson National’s Elite Access is one example of a variable annuity with alternative investments and lower fees. You want to shop around for variable annuities with lower fees in order to take advantage of the tax deferral benefits. Variable annuities are still a good investment, which is why insurers are going back to the basics of why it was first popular.
Written by Rachel Summit
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