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4 things your agent won't tell you about annuities

There are so many different types of annuities that buying one can become confusing, even for savvy investors. It gets even worse when you consider the things many insurance companies won't tell you about this complex investment.

Here are four things about annuities your agent probably won't volunteer:

1. The total amount of fees
"You don't just pay the insurance company," says Graeme Wright, an Orlando, Florida-based investment adviser with AXA Advisors. "You pay the individual money managers that manage the money. So you may be paying 1 percent to the annuity company and another 1 percent to the money manager. It all comes out of your investment. There's nothing wrong with paying the fees, but people need to know upfront how much they are paying."

2. Surrender charges
"If you are dissatisfied with a company and want to move your money into another company, you may be hit with a hefty surrender charge," says Wright. "I've seen surrender charges of up to 15 percent of the money invested."

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Wright says investors should know how long a surrender charge is effective for and how much it amounts to. "The insurance company may charge you 10 percent to move your money out the first year, 8 percent the second year and so on. Some insurance companies are not totally upfront about these charges."

3. Windows or corridors
No, we're not discussing architecture here. Windows or corridors are ways to access your money without triggering a surrender charge. For example, if you own a $100,000 annuity with a 15 percent corridor, it means you can withdraw $15,000 without a surrender charge. The charge will start applying if you want to take out $16,000.

4. The risks of variable annuities
Never forget, your money is subject to market forces and can go up and down in value. "Picking the right fund is important," he says. "As with any investment, make sure the choice of funds is diverse enough to fit your investment wishes."

Prakash Gandhi is a freelance writer based in Florida.

-- Posted: Sept. 23, 2003

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