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Risks of Owning Variable Annuities

Risks of Owning Variable Annuities

Many variable annuity owners have recently been receiving puzzling letters in the mail. Hartford, AXA, Transamerica and other annuity sellers have sent offers to policyholders to remove the income guarantees (the reason most people buy an annuity) in exchange for a lump sum payment to their “account value”. Hartford is trying to leave the American annuity market. Aviva, formerly known as Amer Us and American Investors, is now owned by a British life insurance company. Hartford variable annuity owners have until October 4, 2013 to decide whether or not to reduce the amount of stocks they own in their annuities. These ”Buy out” or buyback offers are confusing to people. Justifiably, most annuity holders wonder how insurers can legally change the terms of their annuities.

Why are insurance companies worried and trying to change their annuity agreements? Just five years after the banks and brokerage firms required bail-outs, the fear exists that other insurers might follow AIG and go the way of all flesh. For years, insurance companies and their representatives have sold variable annuities as being just as safe as bonds, but offering higher yields, with lifetime income easily achieved at above-market rates of return. Annuity sales have soared as the stock market’s volatility scared investors. They sought safety in an insurance product, and were told that they could always “annuitize” and take monthly payments over their lifetime. Now, the stock market has reached new highs, but seems to be somewhat overpriced. Interest rates have been at fifty year lows. Insurance companies are concerned that their reserves will not be sufficient to pay their annuity owners’ lifetime benefits. Couple this investment risk with Americans’ longevity and the perfect storm has been created. Insurance companies are worried.

Recently, the New York insurance regulator has warned variable annuity owners that several insurance companies have artificially inflated their reserves. This adds to the potential risk to annuity holders. Transamerica, Aviva, ING, AXA, The Principal, Guggenheim, Genworth, Midland, North American, American Equity and Equitrust, have sold billions of dollars of annuities to people who expect to be able to annuitize them, but given their questionable reserves, annuity owners have a reason to worry.

This is a confusing time to own an annuity. Some annuity owners have received letters about their annuities, which are difficulty to understand. The letters are cloaked in legal-sounding language. They set deadlines for annuity owners to act, but provide no advice. Some advisors are offering soothing words, and others are angry that the insurance companies are trying to renegotiate their duties to their annuity owners. Many annuities have gone through a bear market and now a bull market, but have barely budged in value. The guaranteed income value might be up, but the amount of income produced would be the same if the annuity were surrendered and other investments purchased. Many of these insurance companies received a bail out during the last five years, and concerns are mounting that some of them might again be at risk.

Many senior citizens have bought annuities believing that the monthly payments would be safe and secure. These annuities also are the basic investment of many peoples’ IRA and 401K accounts. If you own an annuity issued by Transamerica, Hartford, Aviva, The Principal, Guggenheim, Genworth, Midland North American American Equity or Equitrust, please call (913) 485-5014 for further information as to your legal rights.

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