A must-read excerpt from MarketWatch by “Stan the Annuity Man”:
Don’t ‘supersize’ your annuity
“You can learn a lot about buying annuities from ordering those burgers and fries at your favorite fast food restaurant. Those extra fries and additional soft drink you are enticed into buying seem eerily similar to the additional benefits that some agents encourage you to add to your annuity policy.
In 2004, independent filmmaker Morgan Spurlock made a fascinating documentary called ” Super Size Me ,” where he ate all of his meals at a renowned fast food chain and kept tabs on his ongoing health status. To make things even more interesting, every time he ordered and was asked if he wanted to “supersize it” (i.e. make the order larger for a small up charge), he was required to say yes and then eat that huge mound of food in its entirety. To cut to the end of the film that I would definitely recommend seeing, Spurlock almost died from this experiment and scared his doctors and family into making him quit this food test case.
What Spurlock didn’t know at the time was that he laid the groundwork for how potential annuity buyers should approach the purchase of an annuity policy. Let’s take a look at these unique annuity/food correlations…
…Just like you don’t need a bucket of fries and a half gallon soft drink with your triple-decker burger, the same correlation can be used when deciding to buy an annuity. Adding more riders (i.e. attached benefits) to a policy doesn’t make the annuity better. In most cases, all you’re doing is lessening each of those overall contractual rider benefits while raising the annual fees that you will pay for the life of the policy.
Always remember that life insurance and annuity companies have the big buildings for a reason. A basic example of this “big building” strategy is that if your annual fee on your loaded-with-riders variable annuity is 3% annually, and you have $500,000 in the policy, you will pay $15,000 a year for the life of the policy. Multiply that number against your life expectancy!…
The good news for the fast food industry is that Spurlock’s film did initiate the burger/fry corporate leadership to stop the annoying practice of asking people to “supersize” their order. Unfortunately, the annuity industry has picked up where they left off, and are encouraging you to increase your annuity order.
My advice: Make sure you don’t pile your annuity plate with more than you need, because it’s never wise to ‘supersize’.”
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