A personal finance blog dedicated discussing such topics as budgeting, asset allocation, 401K, IRA, cash flow, insurance, financial planning, portfolio management, and other areas in personal finance.


Saturday, January 22, 2005

There is no Free Lunch!

The other day, I was surfing the different financial forums and boards and I came across this one board where this guy said that fixed annuities do not have expenses. Basically, he was saying that fixed annuities are FREE!

My question is: if they are free, then how is the insurance salesman getting paid?

The "fee" that a person pays on a fixed annuity is hidden. It is the DIFFERENCE in what the annuity holder is paid and what the insurance company can earn. For example, if an insurance company can get an 8% return out in the market, they will pay out 6% or so and keep the 2% difference. So, THERE IS A FEE!

Now, all of this makes it sound like I am against annuities. That's not true. What I am against is decieving people into thinking that they are getting something for free, when in fact they are not. Fixed annuities can give some people peace of mind knowing that they will recieve a check each month for a specified amount. They don't have to worry about it. I don't have a problem with that as long as they know what it is costing them.

There is no free lunch!