Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 386

policy is active. Variable universal life may however have higher fees that the other types of life insurance.

Annuities - If there is one thing life insurance companies are good at, it is their innovative ways to attract customers. Annuities are a testament to that legacy. Annuities are insurance products offered by life insurance companies where insurance is not their primary focus! Realizing the fact that many people are attracted to the tax-deferred characteristics of the whole life and universal life insurance, the insurance companies created annuities, where the investment part became the primary focus with the insurance part (being used as a thin wrapper around the product) paying out to the beneficiaries the builtin cash value at the time of death. Otherwise the policyholder can begin withdrawing from the annuity at retirement (normally age 59 1/2) and pay income tax on the tax-deferred profits made.

There are generally two types of annuities, fixed and variable. Fixed annuities guarantee a certain return on investment for a fixed period of time. Once that period is over, the guaranteed return is revised for the next period. The problem with this type of annuity is that most promise high returns in the beginning but for the subsequent periods deliver dismal returns. Variable annuities allow investors to pick from a choice of investments such as stocks, bonds, and mutual funds. The problem with this type of annuity is that many of them come with high fees and transaction costs. But on the positive side, if the policyholder dies, the beneficiary will receive, at the minimum, the total amount invested in the annuity regardless of whether or not the annuity has had losses. For example, if the policyholder dies in year 10 having contributed $50,000 but only showing $30,000 in the account (due to losing $20,000 on bad investments), the beneficiary will receive the full $50,000. Of course, if the account has grown to perhaps $80,000, the beneficiary receives the full value of the account. In both types of annuities, if the policy is

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Table of Contents Copyright and Disclaimer Foreword Money
Bonds Futures Stocks Options
Mutual Funds Retirement Final Words Appendix A

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