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Author: lethean Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 435  
Subject: what product is this? Date: 1/1/2011 3:39 PM
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Have a friend who told me that they bought an annuity product this past fall - after I suggested that they not do that. So now I'm curious what product they have.

My understanding of it is a little vague.

1. They will receive up to 20% the first year depending upon "performance".

2. They can take up to 10% per year out with no penality.

3. Any earnings go into a bond fund.

4. Guaranteed to get all their principle back in 10 years.

5. Sales rep only makes 2% (Is that per year?)

6. Company is Allianz (sp).

They can also buy the same product but with earnings going into an equity fund.

Any idea what this product is called? How bad is it?

ML
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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 406 of 435
Subject: Re: what product is this? Date: 1/2/2011 2:21 PM
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This sounds like an index annuity. The potential gain is tied to stock market performance, usually an index such as the S&P 500, but the gain you can collect is usually capped at some number and sometimes you get only a percentage of gain per year. So when the stock market does a big run up in a single year, you don't get all of it.

The #4 guarantee is usually a guaranteed number when you annuitize the contract, but most contracts are never annuitized. And some will ratchet up the guarantee by a percentage as your account gains in value. If you do not annuitize the contract, the guarantee does not apply. So you get instead the actual gain if you move your funds to another annuity, etc.

On #5, the sales commission is usually covered by the surrender charge. Salesman may collect up to 10% for selling you the contract, but his take comes out of the 2-3% fees charged to the investments every year. If you cancel the contract before the surrender period ends, then the surrender charge recovers the rest of the commission paid.

These products are designed to sound like sure winners--making them attractive to sell. But most are never annuitized because people realize the gain they actually received is less than they anticipate. Hence, once the surrender period ends, expect the salesman to appear at your door wanting to sell you a better annuity (so he can collect another commission on the same money).

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Author: lethean Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 407 of 435
Subject: Re: what product is this? Date: 1/2/2011 4:05 PM
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paul

Thanks very much. I took a look at the products Allianz offers and this seemed to be by best guess at what this couple bought.

https://www.allianzlife.com/Products/FixedIndexAnnuities/Pro...

Not much info on that page so I must have google searched the product for more info on it. As I said - it's my best guess based on the scant/inadequate info that I was told.

I feel like this couple was looking for "approval" from me - after the fact. I really could not comment as I don't know annuities, at all. But I feel bad now.

Had I known that they were going to proceed with an annuity? I would have suggested a call to Vanguard. As it was I merely ordered them Jane Bryant Quinn's book Making the Most of Your Money hoping that they would then drop the idea. I guess that info didn't resonate with them.

And honestly, now that the policy is already purchased, do I even want to know any more about it? I don't think so. It's done.

Frustrating though. I know they were looking for more monthly income.

If the annuity is the one above? How bad is it? They are 67 and 68. I don't know if it is inflation indexed or any other detail.

Thanks again.

ML

ps My google search on Allianz brought up lots of links to scams, frauds, etc. Is it that bad re Allianz, generally?

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 408 of 435
Subject: Re: what product is this? Date: 1/3/2011 3:04 PM
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I am not familiar with Allianz.

As far as fraud is concerned, the annuities industry has been accused of selling inappropriate products to senior citizens and agreed to change their practices. They were accused by attorney generals in several states.

Insurance products are regulated by the states, and most do provide services that some value. Their sales practices are agressive and sometimes seem to includes promises that they fail to keep (although they do comply with the fine print of the contract). I'm not sure that constitutes fraud. But it does fall into the caveat emptor category.

If it sounds too good to be true . . . can your local insurance company deliver on its promises and stay in business?

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Author: CCinOC Big gold star, 5000 posts Top Recommended Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 418 of 435
Subject: Re: what product is this? Date: 12/16/2011 12:20 AM
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pauleckler, you sound like you have a bias against life insurance products. Why?

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Author: pauleckler Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419 of 435
Subject: Re: what product is this? Date: 12/16/2011 6:15 PM
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When it comes to life insurance policies and many others, life insurance companies provide a quality service for a fair price. But when it comes to investments and retirement plans, insurance companies tend to put people into annuities. Some may be useful in some circumstances, but many are sold because of the commissions they pay to salesmen.

They are often expensive. Tricky contract wording often makes them sound more attractive than they are. Performance often disappoints in spite of the high price.

Those who are risk averse, those who require someone else to manage their money, those who want all the risk taken by someone else can do well with a variable annuity. Immediate annuities can provide reliable income for extended periods.

But most investors would be better off investing in mutual funds. Those that underperform are easily replaced. Costs are often much lower.

Everyone has to decide for themselves, but annuity products are usually not your first choice.

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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 420 of 435
Subject: Re: what product is this? Date: 12/16/2011 6:21 PM
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Hi Paul,

Those who are risk averse, those who require someone else to manage their money, those who want all the risk taken by someone else can do well with a variable annuity.

I think you meant something else... a variable annuity has 100% market downside exposure to principal, on top of silly/crazy fees to boot.

Dave Donhoff
Leverage Planner

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 421 of 435
Subject: Re: what product is this? Date: 1/4/2012 10:27 AM
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I think you meant something else... a variable annuity has 100% market downside exposure to principal, on top of silly/crazy fees to boot.

Absence any riders, that would likely be the case but most are sold these days with some form of income, withdrawal, or prinicipal guarantee rider. Doesn't help with the expenses but it does give the buyer some protections.

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