From: perez@csc.ti.com (edward perez)
Newsgroups: misc.invest
Subject: Re: Variable Annuity Life Insurance Plans...
Date: 23 Nov 92 19:23:35 GMT
Reply-To: perez@csc.ti.com
Distribution: usa
Organization: Computer Science Lab, Texas Instruments

karl@ttank.ttank.com (Karl Bunch) writes:
>I would appreciate some pointers on Life Insurance plans that I have heard
>called "Variable Tax Deferred Annuity" plans.  A Prudential sales-critter
>is pushing us towards one.  I am self-employed and this seems like a good
    ^^^^^^^^^^^^^^^^^^^^^^ be wary of this.  see below.
>way to bury a little cash white "covering my a**".  Is this true?
>
>I know you have to look out for the "Modified Endowment" clauses.  Outside
                                     ^^^^^^^^^^^^^^^^^^^^ what is this??
>of that are there other things we should be asking this guy?

karl, they are not really life insurance plans.  more a deal where you give
money to the insurance co. and they promise (as best they can) to give you some
back (all if it is a fixed annuity) plus any earnings over a specified period
of time.

at the minimum,  [my opinion in brackets]

what is the minimum amount you must put in?  can you add to the annuity?  if
so, what is the minimum and how often?  [look for one where you can continue to
add to it so you can dollar or value cost average]

what sort of fee (aka sales charge, load) do you have to pay to buy the
variable annuity?  note that the sales charge usually goes to the selling
broker.  hence, they WANT you to buy one, whether you need one or not (reminds
me of the line from "We're No Angels" with Humphrey Bogart: "That's his job,
selling people things they don't need at a price they can't afford.").  [dont
pay a sales charge!!]

what sort of surrender charge is there and how many years before there are no
more surrender charges?  [usualy 5-7 yrs, sometimes 10; as low as possible for
as short as possible]

what are the annual fees (mgmt, acct, mortality)?  [as low as possible]

how much can you withdraw each year without paying a surrender charge?  Note
that any money you withdraw is subject to a 10% IRS penalty as well as regular
income tax (like withdrawing from an IRA).  there is a way around the 10%
penalty.  [look for one where you can withdraw up to 10% of value without
surrender charge, just in case you really need to get to the money]

what sort of annuitization (payout) options are there?  [as many as possible]

are there toll-free numbers you can call to get info on your acct?  [for sure]

what sort of investment choices do you have?  are they managed by the insurance
company or by a mutual fund co. on behalf of the insurance company?  [as many
as possible]

how often/how much can you switch between the choices?  [as often as possible]


>Are there other companies offering better plans than Prudential has?
>

i have one from Vanguard Variable Annuity Program, sponsored by Vanguard and
National Home Life Co (?).  unfortunately, they only have four options: Money
Market, Bonds, Equity, and Balanced.  no sales fees, no surrender charges,
$25/annual fees, very low mgmt/mortality fees.  so far this year, the Equity
and Balanced are up about 10%.

i have also received information from Independent Advantage (IA) in California.
all they do is sell variable annuitites.  most have sales fees, 5-7 year
surrender charges, >$30 annual fees, etc.  but they have a wider range of
choices.

there is a company here in dallas, Fisher Agency (214 238-1450), that is
similar to IA, but they also sell fixed annuities (guaranteed interest rate).
they can send you info on both kinds free of charge or obligation.

>What tax benefits / problems am I looking at?

any money you put into an annuity is AFTER tax dollars.  there is no legal
limit to how much you can put in nor how many you can have.  the limit for IRAs
is $2000 or earned income, whichever is less, and only if you meet certain
conditions (see IRS rules).  any increase in the value of the annuity due
to interest and capital gains are tax deferred.  you only pay taxes when you
withdraw, and only then on the interest/gains.

you cant pull the money out without paying a 10% IRS penalty unless you pull
the money out in equivalent, periodic amounts for 5 years or until you are 59
1/2, whichever is later.  you still have to pay income tax on the earnings.

if you die before you get to annuitize, certain annuity companies will
guarantee that your beneficiary(ies) will receive no less than the amount you
have contributed.

in my mind, the adjective "variable" really implies non-guaranteed, because you
are investing in stocks and bonds, for which there is no guarantee that your
money will really be there when you ask for it back.  that is, your principal
is not guaranteed.  in a fixed one, you are guaranteed to get the principal and
interest back (unless the company goes bankrupt, see below).


a few things i just found about annuities (in a brochure from IA).  1) variable
annuities are held in a "separate account" from the insurance.  if the ins. co.
goes bankrupt, you still get your money back.  a fixed annuity is NOT held in a
"separate account."  2) if you have a variable annuity and you have made some
really big paper gains and want to lock it in without having to pay any tax on
the gain, you can perform an exchange into another variable or fixed annuity
without penalty, unless you have to pay a surrender charge.  kinda like selling
a stock with gains and putting the money in another stock or money market acct.

i still dont know if you can exchange your annuity into an IRA or vice versa.
does anyone know???


if you want the phone number for IA, please email as i still have the brochure
at my home.


all the above is from memory (except fisher agency's phone number), so there
may be a error or two here or there.

----------------------------------------------------------------------
edward roland perez           internet: perez@csc.ti.com             #
peace, love, and energy.         csnet: perez%ti-csl@relay.cs.net    #
dance or die!                     usps: 9511 liptonshire             #
wherever you go, there you are.         dallas, tx  75238            #
                                 phone: 214-995-0698(w) 349-7221(h)  #
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Newsgroups: misc.invest