CMP Financial Planning

Are Annuities Always a Bad Deal?


Are Annuities Always a Bad Deal?

An annuity is a contract between you (the annuity owner) and an insurance company. In return for your payment,
the insurance company agrees to provide either a regular stream of income or a lump sum payout at some future time— often at retirement.

Generally annuities have a bad reputation, well-deserved, because they are often sold inappropriately, with the end result that only the salesperson wins, as he or she walks away with a generous 5% (or more) commission, while the investor is left with a high expense insurance product and endless surrender charges. But there are a few instances where annuities make sense:

Annuities almost never work well as a savings vehicle because of their high internal expense structure, but they can provide benefit as a payout vehicle for the first 2 reasons listed above. Recently, new low-cost annuity products have been created for fee-only advisory firms such as CMP. These products treat the investor much more favorably. But of course, you’ll never hear about them from your local insurance agent or bank broker because these insurance products don’t pay a commission!

By Christina Povenmire