Do you own a variable annuity? Have you read the prospectus? If you are like most investors, the answer is no.
A recent poll by the Insured Retirement Institute and Cogent Research showed that only 17% of retirees and pre-retirees even looked at their variable annuity prospectus. And only 3% of investors “always” read their prospectus.
And that is using the word “read” loosely. Investors admit that they typically read somewhere between 7 to 16% of the document. That sounds more like skimming than reading.
To be fair, a prospectus typically runs in the neighborhood of 150 to 300 pages…and that alone could deter some investors from turning the first page. According to the Insured Retirement Institute president, “Rather than provide consumers with relevant investment information, the sheer length of the full prospectus has created a barrier to investor education” (Investment News).
And the barrier is expanding. Last year 22% of investors read their prospectus, compared with 17% today. And 9 out of 10 investors admit that they don’t use their prospectus as a reference when they have questions about their annuity.
That’s a problem considering that variable annuity sales reached $153.7 billion last year…and $35.7 billion in the first quarter this year, according to Morningstar.
A prospectus may not be light, or really enjoyable, reading. But it’s critical, almost mandatory, for any investor who owns, or is thinking about buying, an annuity product.