One of the challenges facing many people who want to purchase a variable annuity is the multiplicity of fees that go along with it. Many variable annuities come with administrative costs, mortality fees, rider fees and the dreaded surrender charge which traps many annuitants into sticking with an annuity even when they eventually discover the package the got is not right for them.
For those concerned about the fees charged by insurance companies for regular variable annuities, getting a low cost variable annuity may seem a viable option. But the question is: are low cost variable annuities worth it?
A low cost variable annuity is a variable annuity which has fewer and lesser charges than the regular variable annuity. Many of the fees, including the surrender charge, have been stripped off. However, those considering a low-cost variable annuity have to consider certain factors.
The truth is that low cost annuities come with some compromises. Many of the high cost variable annuities come with certain guarantees. Some of the guarantees that are most important to annuitants are:
1) Tax deferrals on earnings
2) Ability to receive payments for the duration of one’s life based on your calculated life expectancy.
3) Ability of beneficiaries to receive further payments after an annuitant’s demise.
It is very possible that a low cost annuity may not have the same benefits or guarantees offered by regular variable annuity packages. If considering a low-cost variable annuity, it is always good to find out if the benefits received justify the cost of the annuity. Insurance companies are out to make profit. That is the name of the game. So any decrease in costs will have to be recouped from somewhere in the annuity package, naturally in some form of a benefit reduction. Therefore, an annuitant must try to do some due diligence and compare packages offered by different companies to find out if the so-called low cost variable annuities will suit the purpose of getting an annuity in the first place.
Many experts advocate taking a low-cost variable annuity along with a separate life insurance policy. That way, it is possible to cover up for benefits that may not be covered by a low cost variable annuity. The best advice would come from your financial advisor.