When you purchase a variable annuity, the insurance company adds your money to a professionally managed pool where you and your advisor can purchase stocks, bonds and other investments from premier money management companies like Vanguard, T Rowe Price, and Fidelity just to name a few. The value of the portfolio fluctuates with the markets. The reason people invest in a variable annuity, as opposed to, say, the guaranteed payments that come with an ordinary annuity, is that they anticipate higher returns (more money) in the long term. For this article I’m going to focus on the value the step-up death benefit feature could play as a market hedge when trying to grow and protect investments in todays economy for your beneficiaries.
If you’re thinking, “gee, that sounds an awful lot like a mutual fund,” then you are correct. But there are important differences between mutual funds and variable annuities, one of which is the death benefit guarantee. The death benefit is a guaranteed payment to your beneficiaries. It is usually, but not always, the amount you invested (less any withdrawals you have made). Should your investment decline, your beneficiaries still receive at least the amount you invested even if the markets have declined. If the value of your investments has risen, then your beneficiaries inherit the higher value. Once set, the death benefit does not decrease if the contract declines
Variable annuities frequently offer a step-up feature. A step up allows you to take advantage of rising markets by increasing the death benefit for your beneficiary. When the value of your investment rises, you can lock in the higher account values, and that becomes the new guaranteed death benefit. In short, when markets are rising, you can step-up your death benefit. Some companies offer a spousal protection feature which helps you and your spouse provide for each other no matter who dies first. The surviving spouse would receive the higher
of the step-up value or account value should the other pass. This benefit also allows the investor to allocate the funds more aggressively, knowing that a guarantee is in place if they were to pass away during a market decline.
Insurance companies charge fees for guarantees and other features that come with variable annuities. Step-ups have fees, and there will be certain restrictions on how often you can step-up the death benefit. It is important to have this information explained to you by an insurance company representative before embarking on this
investment path. Most people pay fees to insure their homes and cars. Doesn’t it make sense to pay a fee to insure your money?
Critics say variable annuities are too good to be true and on top of that, they’re too expensive. Variable annuities aren’t too good to be true. They’re too good to be free. Anyone who negatively portrays variable annuities likely falls in one of two camps. Either they don’t understand their potential benefits, or they have something to gain by
scaring you away from them. For many people, a variable annuity is the only way to purchases stocks, bonds and other investments from top fund management companies like Vanguard, T Rowe Price, and Fidelity. But with a guarantee!
Please feel free to contact me If you have any questions about this or any other subject.
SCHLAGER SCHLAGER & LEVIN (SS&L) provides tax advice & tax preparation services. Securities offered
through JW Cole Financial, Inc (JWC), Member SIPC. Investment advisory services offered through JW Cole
Advisors, Inc (JWCA). SS&L and JWC/JWCA are not affiliated entities. Neither JWC nor JWCA nor their
representatives provide legal, tax or accounting advice. If advisors do provide such advice or tax preparation
services, they do so in a capacity other than as a registered representative or investment advisor.
This information is not intended as a solicitation or an offer to buy or sell any security or investment
product. Investments and strategies mentioned may not be suitable for all investors. Past performance is
no guarantee of future results. As with all investments, income generating programs, etc. various risks may
exist and JWC/JWCA recommends you consult with your financial advisor prior to making any financial
decisions. You should consider the investment objectives, risks, charges and expenses of an investment
carefully before investing. The prospectus contains this and other important information. Prospectuses for
both the variable annuity contract and the underlying funds are available from your financial professional.
Please read all prospectuses carefully before investing.
SCHLAGER SCHLAGER & LEVIN Tax Strategies & Wealth Management
12525 NEW BRITTANY BLVD, BLDG #30
FORT MYERS, FL 33907
Naples and Bonita Springs: by appointment only.
SCHLAGER SCHLAGER & LEVIN (SS&L) provides tax advice & tax preparation services. Securities offered through JW Cole Financial, Inc (JWC), Member SIPC. Investment advisory services offered through JW
Cole Advisors, Inc (JWCA). SS&L and JWC/JWCA are not affiliated entities. Neither JWC nor JWCA nor their representatives provide legal, tax or accounting advice. If advisers do provide such advice or tax preparation services, they do so in a capacity other than as a registered representative or investment adviser.