Although Ben Stein likes variable annuities, these insurance products can be an expensive way of investing. They do “assure” a level of income over a certain time period, but depending on where you go to receive this product, you could be paying too much for a service that can be found somewhere else for less.
Additionally, the variable annuity product is not right for some people. Not all salespeople are ethical and even when innocent, they often have their own commission check in mind rather than the fiduciary health of their customer.
If you find yourself with an expensive variable annuity, you can switch. The IRS allows you to transfer your assets to a different annuity product, even one offered by a different company than the current insurance carrier. Normally there’s a 10% IRS withdrawal penalty if you liquidate the annuity before the age of 59½, but this penalty is waived for a qualifying transfer.
There are two catches:
1. You can only switch products if you haven’t begun to receive payments.
2. Your insurance carrier may require you to pay a surrender fee.
Catch number one has no wiggle room. Either you can perform the transfer or you can’t. The second catch requires you to weigh the surrender fees against the lower expenses of the new annuity product.
This escape clause should come in handy if you or a loved one is “trapped” in an annuity product that was misunderstood at the time of contract.