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URL:  http://boards.fool.com/retof-what-youre-getting-from-the-insurance-25288866.aspx

Subject:  Re: Annuities vs Investments? Date:  3/15/2007  12:30 PM
Author:  BruceCM Number:  56284 of 75633

Retof
What you're getting from the insurance company is a bit misleading. Lets look at the specifics you've given.

If you deposit $100,000 with them (think of it as a loan), and they begin paying you an annual principal and interest payment over 24 years of $7,008 per year, this calculates to a 'lending rate' (APR) of 4.66%. And like a loan, you completely lose use of the $100,000, if you die before the 'loan' is repaid, you lose any balance and, don't forget, this 'loan' may not be insured...that is, if the insurer goes out of business, depending on your states laws governing the state's guaranty fund, you may lose the monthly payment and any balance held by the defunct insurer. Insurer defualts don't happen very often, but they do happen.

Of course, the insurance companies just love to stress that you'll 'never outlive your annuity payments'. But is this really much of any value? I mean, even if you lived to be age 100, the annual return on your investment you'd have to get to support your $7,008 annual withdrawal is 6.14%.

When listening to (or reading) the claims of an insurance company on their latest and greatest 'guaranteed' convoluted products, it helps to remember the following:

1. The insurance company invests in the same stock market I do
2. The insurance company has no more of an idea of what the markets (including the bond markets) are going to do in the future than I or anyone else does
3. Insurance companies, like any other company, may go out of business in the future, so their 'guarantees' are often only as good as their ability to pay it, and
4. Insurance companies and their minions get paid first, regardless of how my 'investments' with them perform.

When you think about it, its very difficult for an insurer to offer any value to their investments after subtracting out their expenses. This is why you should always keep insurance and investments, including annuities, separate.

BruceM
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