This is a preview. Log in to get access Show Journal Information The Journal of Risk and Insurance publishes rigorous, original research in insurance economics and risk management. This includes the following areas of specialization: (1) industrial organization of insurance markets; (2) management of risks in the private and public sectors; (3) insurance finance, financial pricing, financial management; (4) economics of employee benefits, pension plans, and social insurance; (5) utility theory, demand for insurance, moral hazard, and adverse selection; (6) insurance regulation; (7) actuarial and statistical methodology; and (8) economics of insurance institutions. Both theoretical and empirical submissions are encouraged. Empirical work should provide tests of hypotheses based on sound theoretical foundations. JSTOR provides a digital archive of the print version of The Journal of Risk and Insurance. The electronic version of The Journal of Risk and Insurance is available at http://www.blackwell-synergy.com/servlet/useragent?func=showIssues&code;=jori. Authorized users may be able to access the full text articles at this site. Publisher Information The American Risk and Insurance Association (ARIA) is a worldwide group of academic, professional, and regulatory leaders in insurance, risk management, and related areas, joined together to advance the study and understanding of the field. Founded in 1932, ARIA emphasizes research relevant to the operational concerns and functions of insurance and risk management professionals and provides resources, information, and support on important insurance and risk management issues. Two main goals of the organization are 1) to expand and improve academic instruction of risk management and insurance, and, 2) to encourage research on all significant aspects of risk management and insurance. Rights & Usage This item is part
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Generally, variable annuities have two phases:
If the payments are delayed to the future, you have a deferred annuity. If the payments start immediately, you have an immediate annuity. As its name implies, a variable annuity's rate of return is not stable, but varies with the stock, bond, and money market subaccounts that you choose as investment options. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Evaluating Variable
Annuities Before you consider purchasing a variable annuity, make sure you fully understand all of its terms. Carefully read the prospectus. Here are seven factors you should bear in mind before investing: 1.
Liquidity and Early Withdrawals 2. Sales and Surrender Charges 3. Fees and Expenses Mortality and expense risk charges, which the insurance company charges for the insurance to cover:
Administrative fees, for record-keeping and other administrative expenses; Underlying fund expenses, relating to the investment subaccounts; and Charges for special features, such as a:
These annual fees on variable annuities can reach 2% or more of the annuity's value. Remember, you will pay for each variable annuity benefit. If you don't need or want these features, you should consider whether this is an appropriate investment for you. 4. Taxes Once you start withdrawing money from your variable annuity, earnings (but not principal) will be taxed at the ordinary income rate, rather than at the lower capital gains rates applied to investments in stocks, bonds, mutual funds or other non-tax-deferred vehicles in which funds are held for more than one year. 5. Bonus Credits 6.
Guarantees 7. Variable Annuities within IRAs: Not
generally a good idea Also, if the annuity is within a traditional (rather than a Roth) IRA, the government requires that you start withdrawing income no later than the April that follows your 70th birthday, regardless of any surrender charges the annuity might impose. Beware of High Pressure Sales Tactics Seniors appear to be frequently targeted, with 90-year-olds sometimes sold variable annuities whose withdrawal penalties last for 10 years or more. A FINRA report found that firms repeatedly go back to the same customers and switch them to a new variable annuity product every few years. The broker will suggest that you switch to a "better" variable annuity in a tax-free exchange. However, it is not disclosed that you will have to hold the variable annuity for many more years before you can touch your money penalty-free. In 2004, the FINRA brought an action against a broker for switching 6,700 customers to a new annuity that earned the broker higher fees. 1,400 customers were likely to lose money on the trade, while the broker made $37 million in commissions, according to the complaint. In a complaint received by the SEC, the purchasers of a variable annuity were advised that having an annuity as part of their tax-deferred investment account (IRA) was the same as a "double tax-deferred investment." While it's true that one key benefit to purchasing variable products is that earnings on the investment accumulate tax-deferred, a variable annuity within a tax-advantaged account will provide no additional tax savings. It will, however, generate fees and commissions for the broker. How to Protect Yourself
Brokers also must collect important information from you about your age, marital status, Before purchasing a variable annuity, you should specifically ask the person recommending that you purchase a variable annuity:
And remember to ask yourself:
Have You Already Purchased a Variable Annuity? Some policies may have a "free look" period that allows you to cancel within a specific period. Investor Bulletin on Variable Annuities What does a variable annuity not provide?Variable annuities are not suitable for meeting short-term goals because substantial taxes and insurance company charges may apply if you withdraw your money early. Variable annuities also involve investment risks, just as mutual funds do. rather than lower capital gains rates.
Which of the following characteristics is not associated with a variable annuity quizlet?Which of the following characteristics is NOT associated with a variable annuity? Call risk is associated with fixed-income securities, but not variable annuities.
Which of the following is not included in an annuity?Which of the following is NOT included in an annuity contract? AD&D rider. ( All of these are included in an annuity contract EXCEPT an Accidental Death & Dismemberment (AD&D) rider.
Which of the following is characteristic of a variable annuity?Which of the following is a characteristic of a variable annuity? Variable annuities involve underlying equity investments in a separate account.
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