Annuities Rant Part II – Low Returns and High Fees

Editor’s Note: Please see Annuities Part I here.

Another reason I don’t like fixed rate, fixed index, and variable annuities is their low returns and high costs. These are directly related. The higher the costs to you, the lower your returns.

To begin with the simplest of the three types, fixed rate annuities are the exception in that they do not charge high fees. In fact, generally they don’t charge you any fees at all. Instead, they offer you very low returns. 

I recently pulled some quotes from my preferred insurance company. For amounts less than $100,000 I could earn 2.6% guaranteed on a fixed rate annuity for the next five years, and I could earn 3% if I invested more than $100,000. I checked rates with another provider online and received quotes in the similar range of 2.8% and 2.95% respectively. That rate changes over five years. Mine had a minimum reset rate of 1.3%, after the five year term. 

What should we think about these rates?

With a product like this, you should always reasonably expect that the annual return on a fixed rate annuity, adjusted for inflation and taxes, will be approximately zero. That’s not a typo. That’s just a rule of fixed rate annuity products and risk-less products in general.

Now, figuring the returns of fixed index and variables annuities is trickier because they are somewhat market driven and depend on what you pick as underlying investments and risks. But we can understand what the costs are, and therefore their expected underperformance versus comparable assets you could buy from a brokerage company.

With a variable annuity you have the chance to purchase mutual funds similar to funds at a brokerage account. Costs will weigh down your returns, however. 

The management fees of mutual funds offered inside a typical variable annuity are typically very high. In the 2018 Brighthouse Financial Life (formerly MetLife) policy variable annuity contract I reviewed, the costs of mutual funds ranged from a low of 1.56% to a high of 2.71%. Hello? 1987 just called, and it wants its mutual fund fees back.

The cheapest 1.56% fund was a stock index fund which low-cost brokerages offer at 0.05% – or 31 times cheaper elsewhere. I really didn’t enjoy the 1.66% fees quoted on the Blackrock Ultra Short Bond Portfolio. That fund has a 10 year return of 0.39% – meaning you could have locked in huge losses after fees for the past decade, on a product supposedly meant to preserve capital. These types of egregious fund management costs are the rule, not the exception, when it comes to most variable annuity fund offerings I’ve reviewed. The Teacher’s retirement System (TRS) in Texas just capped mutual fund fees inside variable annuities at 1.75% following a “reform” in October 2017, to go into effect in October 2019. These fees are, in a word, bad. Even after that “reform.”

Why are the fees so high? I have a theory, and it goes something like this.

Insurance companies can impose huge fees on variable and fixed index annuities because they have selected their customers very carefully. Only people who don’t know what they are doing would select these providers and these products. So in essence they can charge whatever they like.

They employ psychology similar to how the “Nigerian Prince” scam artist who supposedly wants to wire you $10 million will purposefully misspell words in the solicitation email. The Nigerian Prince scammer knows that any target victim who replies has no powers of discernment. The misspelling in the email is a purposeful selection process by which the scammer chooses the right kind of victim.

Seems legit, right?

Similarly, whenever a public school employee sets up a “finance and retirement discussion” meeting with a commissioned insurance salesperson, the salesperson can have high confidence that the teacher has absolutely no idea what they are doing financially. The result: high fees, with impunity!

Of course, there are more fees after that. 

Arguably the main service an insurance company provides with variable and fixed index annuities is a lifetime guarantee of payments, because they employ actuarial math that helps them make educated guesses about how long you’ll live. That seems like a service. And the insurance company seems to be taking a risk on you.

Ah, but they aren’t, not really. These complex annuities also charge a fee on your account called the “mortality and expense risk charge” – offloading that specific risk that you live too long – to you. 

The 2018 Brighthouse contract I reviewed charged 1.2% per year for this “mortality and expense risk,” and the industry range is an extra 0.4 to 1.75% per year on these products. The lesson: If you charge high enough fees, you don’t end up taking a risk.

Finally, here’s my least favorite of all the low-return/high cost features of fixed index annuities.

This gets a bit technical, but bear with me, because this is really how the sausage is made.

The insurance company calculates the ‘growth’ in your fixed index account value based on the change in value of a stock market index over a year, but does not take into account dividends or the reinvestment of dividends that you would get, were you invested in the market directly through a brokerage account. 

Over long periods of time working towards retirement – I’m talking about decades – the growth of your investment may be in substantial part due to dividends. Because of the way the company calculates returns, however, you probably don’t get the return on dividends from a fixed index annuity. 

Does this matter? Oh yes.

Let’s say you had $100,000 in an S&P 500 brokerage account beginning in May 1989, held until May 2019. The return on the index over 30 years, considering only index price changes, is 7.7%.

However, the return on the index over 30 years, including the reinvestment of dividends, is 9.9%.

Hmm. Is that annual 2.2% difference a big deal? Yes it is. It’s the difference between ending up 30 years later with $818,000 or $1.6 million. But if you, as a fixed index annuity investor don’t get the credit for dividends or the reinvestment of dividends, who kept that money? Do I have to spell this out for you?

Over a long period of time, you may be leaving half your investment gains with the insurance company.

When you are a hammer, everything looks like a nail. Similarly, when you are an insurance company or commissioned insurance salesman, the investment solution everyone needs for retirement is an annuity. It’s what you sell.

As I do not sell annuities, all I can say is: Don’t buy these.

A version of this rant ran in the San Antonio Express News and Houston Chronicle.

Please see related posts:

Annuities Rant Part I – The Complexity

Annuities Rant Part III – Condoning in Some Ways

Annuities – Death Eaters

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Annuities Rant, Part I – On Complexity

Fixed rate annuities, fixed index annuities, variable annuities – how do I hate thee? 

I’m not recommending this book. I haven’t read it. I just like the double-entendre of “Cons” = Convicts and “Pros = Only professional salespeople could like this.

Let me count the ways, for they are plural.

Let’s start with annuities’ complexity. In a future post I will address their mediocre returns and high fees. 

Complexity matters because of a basic rule of financial products I just made up which, if you read it out loud, will sound a lot like your Miranda Rights:

“You and your money have the right to simplicity. Whatever you can’t understand can and will be used against you by the financial service provider.”

Annuities come in three main flavors. 

The vanilla flavor – fixed rate annuities – are actually decently simple. These are not evil. You give money to the insurance company, either all at once or over time, and they agree to give you back your money in equal monthly payments, either for a fixed amount of time or more typically for the rest of your life, guaranteed. The only fancy complex math going on in the background of fixed rate annuities is an actuarial guess about when you’ll die.

The other two flavors – the confusingly named fixed-index annuity, and its close cousin the variable annuity – are far more complex. Their structures vary from company to company, so in describing them I can point out the possible complications, but the specifics will be hidden from you somewhere in the fine print of your contract. Like an Easter egg hunt, but far, far more costly.

The other flavors start out with opaque calculations as the insurance company collects your money over time. At some point when you’re done giving money over they morph into a simpler fixed annuity. In this way, the fixed index and variable annuities are like hungry fuzzy caterpillars, disgusting to look at. Eventually, however, they annuitize and become simpler fixed rate annuity butterflies.

In prepping this review I read every word of some of the most boring variable annuity product plan documents you can imagine. Three different company contracts from 2008, 2014, and 2018, plus The National Association of Insurance Commissioner’s Buyer’s Guide To Deferred Annuities.

So, about the complexity of fixed index annuities, and their variable annuity cousins. Both give the buyer exposure to “the market,” but in an indirect way.

With a fixed index annuity you give your money to an insurance company and they promise to credit your account with some of the gains associated with a stock market index, such as the S&P500 of large cap companies or the Russell 2000 index of small cap companies. But exactly how they do that is usually calculated in a complex way. The basic value proposition from the insurance company is that they say you can participate on the upside when the stock mark appreciates, but they will provide some protection from loss when the stock market drops below the amount you put in, or drops below the previous year’s highwater amount. It’s a kind of “some market upside and some safety” combo platter. Sometimes that protection is against a 10% drop in the market, sometimes it’s against any loss of principle.

But how do they provide this “safety?” A bunch of ways. Sometimes the contract limits your upside by a “participation amount,” like 80% of the index gains. So if the market index returns 10%, you get credit for just an 8% annual gain. Another feature might be a “performance cap” that limits the amount an insurance company will need to credit you with, in a bull market. The market went up 12%? Sorry, your gains are only 9%. You might pay a “Spread Rate” which is a % of market gains, by which your insurance company subtracts your returns. Spread Rate doesn’t sound like a fee, but that’s what it is.

A particularly devious way to limit your returns is to only credit the price change of an index, but not the dividends you would have received if you owned the index in a brokerage account. As I’ll explain in a future column, that might mean you’ve left half your gains on the table.

with guaranteed benefit riders. Helping to Protect your Income. in Unpredictable Markets. Variable Products: Are Not a Deposit of Any Bank • Are Not FDIC Insured by Any Federal Government Agency • Are Not Guaranteed by Any Bank or Savings Association • May Go Down in Value. ML

How does the company handle all this complexity? 

As Jefferson Bank’s contract clearly states, “Subsequent Accumulation Unit Values for each Sub-Account are determined by multiplying the Accumulation Unit Value for the immediately preceding Valuation Period by the Net Investment Factor for the Sub-Account for the current period.”

It goes on like this for a couple of pages. I’ve read all the words and my head hurts.

Let’s go to the AXA Equitable document, to figure out our “Guaranteed Annual Withdrawal Amount” or (GAWA). Well, you see it’s, the, um:

  1.  “The sum of contributions that are periodically remitted to the PIB variable investment options, multiplied by the quarterly Guaranteed Withdrawal Rate (GWR) in effect when each contribution is received, plus
  2. The sum of (i) transfers from non-PIB investment options to the PIB variable investment options and (ii) contributions made in a lump sum, including but not limited to, amounts that apply to contract exchanges, direct transfers from other funding vehicles under the plan, and rollovers) that are allocated to the variable investment options, multiplied by the Guaranteed Transfer Withdrawal Rate (GTWR) in effect at the time of the transfer or contribution, plus
  3. The sum of any Ratchet Increase.”

Got it? As the teens would say: “Ratchet, dude”

Ok, here’s what you do need to know. You can’t independently observe their math. You own rights to a complex derivative – that’s not what they call it, but that’s what it is – and only they can tell you what that derivative is worth.

Variable Annuities should come with a 2-word review “Shit Sandwich”
Nigel Tufnel: “They can’t print that!”

With a regular brokerage account, by contrast, you would see an observable market price for a mutual fund, or a stock or a bond, or an ETF. 

Remember, anything you don’t understand can and will be used against you.

Do you want your money back yet? You can’t have it. 

Generally once you’ve annuitized, you can’t accelerate or change your fixed rate annuity. Prior to annuitization, you can have some, but you will probably pay surrender or withdrawal charges on any fixed index or variable annuity that you want to get out of. You may be able to get 10% of your money back each year without penalty, but for additional money you should expect to pay a 5% fee under many contracts, with a slowly declining penalty amount per year.

So that’s the story on complexity and illiquidity. I’ll tell you next time about the bad returns and the high fees.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

Please see related posts

Annuities Rant Part II – Low Returns, High Fees

Annuities Rant – Part III – I partly take it back, but not really

Ask an Ex-Banker about Annuities – Death Eaters

Variable Annuities – Shit Sandwich

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403(b) Plans in TX – The Terrible Problem of Choice


RetirementSchool district employees in Texas attempting to fund their own retirement – through 403(b) defined contribution plans – face a garbage fire of bad choices.

A neutral and expert observer – anyone not directly benefitting from insurance industry money – can look at the retirement options mandated by school districts and see a rigged game.

Problem of Choice

How is the game rigged? Let’s start with the 403(b) plan problem of “choice.”

School district employees typically have access to a 403(b) plan – a tax-advantaged retirement savings plan through automatic payroll deduction. 403(b) plans as designed and regulated in Texas appear uniquely suited to make a lot of money, not for school district employees, but rather for the insurance industry.

Here’s the first problem with the 403(b) options, because of regulatory and legislative restrictions. In Texas, as in other states like California and Ohio, school districts may not be proactive or selective about what retirement companies and products teachers may access. This is known as an “any willing vendor” rule, according to school district retirement consultant Cecile Russell.

I imagine this “any willing vendor” idea was once sold to legislators as reasonable because it encouraged “choice,” which sounds appealing at first glance. What it actually does is stuffs the menu of investment options to a ridiculous point with insurance companies and insurance products.

Better Design

A better program design, better than this “any willing vendor” model, would involve limiting choices in 403(b) plans to low-cost and appropriate retirement products. A better plan would be designed by experts with fiduciary responsibility looking out for the best interest of school employees. Just as private sector 401(k) designers have to do. School districts in Texas are not allowed to do this with their 403(b) plans.

trsIn Texas the Teachers Retirement System has approved 65 separate vendor companies. There are actually 74 approved vendors listed by TRS but some of those are affiliated companies.  These vendors in turn offer 10,520 eligible investment products to school district employees.

That’s the first problem. Having 10,520 choices is not good. It’s a behavioral finance nightmare which produces what an economist would call “The Paradox of Choice” but which we could also understand more simply as “The Deer in the Headlights” response. For some, their 403(b) plan contributions stay stuck in a money market account earning no return. For others, they use the random dartboard approach to investing. The third option, by design, is that school district employees invest according to the plan of that nice insurance salesman offering free pizza in the teacher’s lounge. All of these are bad results in their own way.

At least two-thirds of approved 403(b) vendors in Texas are insurance companies or have insurance affiliates. Do you want to guess the result of having insurance companies as the dominant providers for 403(b) plans?

A study by independent consultancy Aon Hewitt estimated in 2016 only 24 percent of 403(b) investments are in mutual funds (the preferable products), compared to 43 percent in fixed annuities (the inappropriate product) and 33 percent in variable annuities (the abominably high-cost product.) Those last two products are specifically insurance-company products, whereas mutual funds are typical brokerage company products.

aon_hewittThe result of these asset allocation choices, AON Hewitt estimated, is $10 billion in extra costs paid by 403(b) participant investors, as compared to a comparable 401(k) style investment platform available to private sector workers and products. This is a multi-billion dollar fiduciary failure involving many responsible parties.

One way to understand the asset allocation problem is to understand the effect of compounding different returns over a long career. A school employee who managed to put away $50,000 in her 403(b) by age 30 faces a vastly different retirement depending on what she chooses as her primary investment vehicle. A 4% return on that investment would become worth $240,000, as compared to an 8% return becoming worth $1.08 million by age 70. Differences in returns, when compounded over 40 years, lead to massive divergences in results. Costs and investment products matter tremendously.

Before 1974, only insurance companies could provide investment products to 403(b) plans, giving them a head start with these types of plans. But 45 years later, the relative absence of mutual fund providers stands out as a shocking result. After so many years that result must be considered a feature, not a bug, of 403(b) plan design. It suits the insurance industry to keep this territory for itself, at the great expense of public school employees.

Can reasonable people disagree reasonably?

Now, I haven’t yet explained yet why insurance products are particularly pernicious in Texas 403(b) plan platforms. Many nice people, including especially insurance company employees, believe these to be fine products.

They are not.

I am not anti-Insurance. I buy insurance. It has an important role to play in all of our financial lives. Fixed and variable annuities are not good products, however, for a retirement plan. They are specifically inappropriate within a Texas public school employee’s retirement account. But they account for 75% of the products!

I don’t work for any finance or brokerage company. This is precisely why, even if you don’t understand my point straight away, you should at least believe that I don’t have an ax to grind, except to state the truth as I understand it.

I would go so far as to say that any independent fiduciary for a teacher’s retirement plan – and by independent again I mean someone not paid by any finance company – would agree that these are not the best products for public school district 403(b) plan participants.

And yet, they are the dominant products. Why is that?

In subsequent posts I will lay out the plausible explanation for this result, which is a perfectly legal  – but ought to be illegal – crime hidden in plain site.

A version of this post ran in the San Antonio Express News and Houston Chronicle.

See Related posts:

403(b) Plans – Failed Reform Only An Insurance Company Could Love

Teachers and Their Retirement Problems

Public Policy Debate on Teacher’s Retirement in TX

Nobody Advocating to Fix Teachers’ 403(b) Plans in TX

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Shit Sandwich – Variable Annuities

In my favorite movie of all time, Rob Reiner recalls the two-word alliterative review of Spinal Tap’s unsuccessful second album “Shark Sandwich,” as simply “Shit Sandwich.’

The band members react to this shocking review with resentment, but also with a sense for what newspapers are allowed to actually say.

David St. Hubbins: “Where’d they print that?”

Nigel Tufnel: “That’s not real!”

Derek Smalls: “You can’t print that!”

Which bring me to my two-word review of an extremely popular ‘investment’ product known as the variable annuity. For variable annuities, I’ve got the same two-word review: “Shit Sandwich.”

Variable annuities deserve the same two word review: “Shit Sandwich”

They Can’t Print That

As I wrote this, I knew the newspaper I write a column for wouldn’t carry my real review of variable annuities.1

Of course they won’t let me print a traditional four-letter word. But, for the record, I really don’t think scatology is why most media “can’t print that’ when it comes to my review.

No, they really ‘can’t print that’ because insurance companies are really important media advertisers and variable annuities are really profitable for insurance companies. Hence, you will rarely see an honest review of variable annuities in traditional media.

I’ve been a faithful reader of the Wall Street Journal for nearly twenty years. They are the best daily newspaper when it comes to finance. Just about every three months or so the ‘Retirement’ or ‘Investments’ section of the Journal has a special on annuities, including ‘variable annuities.’ Alongside these sections of course are a slew of brokerage and insurance company advertisements. (If you didn’t already know, that’s the point of these special sections. This is the nature of the Financial Infotainment Industrial Complex.)

That’s where the fun begins. The writers of the Wall Street Journal are smart, and they are also commercially sensible, by which I mean they know where their bread is buttered. So they do this funny tortured-writer’s dance when describing variable annuities. “New annuity guarantees raise questions,” mumbles one ambiguous headline, or “They’re changing our annuity!” writes another, in which, buried in the heart of the article, we learn of many things that can go wrong with these things, without the writer coming out and saying the one thing he or she clearly knows, which is “stay away from variable annuities if you plan on having enough money in retirement.”

Up until this point I haven’t really explained: What is a variable annuity? Also: why should you care?

I’ll start with the second question first. You should care because an overwhelmingly large number of people who don’t know any better have followed their investment advisor/insurance broker/retirement specialist’s advice and bought this shit sandwich, to the tune of approximately $660 Billion. And this overwhelmingly large number of people plan to use it as a main vehicle for their retirement. Don’t know if you have one? Check your retirement plan. Do you use an insurance company for your investments? If yes, chances are, sadly, you bought one of these.

But back to the first question:

What is a variable annuity?

The insurance companies claim that a variable annuity is an investment product that offers both things that every investor wants, namely ‘safety’ plus ‘good returns.’ The variable annuity appears to offer ‘safety’ via a guaranteed income in retirement. The variable annuity also appears to offer ‘good returns’ by adjusting the guaranteed income upward if stock markets do well during the investment period of the variable annuity.

Ok, so…safety and good returns sounds pretty nice…What’s the problem? The biggest problem is extraordinary fees. Like, probably, all-in fees of 3.5 percent per year on your portfolio, which is a serious drag on your money (but great for the insurance company!)

All appearances to the contrary, insurance companies are really not magical wand-wavers that offer the mythical unique combination of safety and good returns. They pretty much just invest your money in stock and bond markets (plus real estate and some derivatives I guess) just like you can directly, except instead of offering you the actual returns of the blended portfolio you bought, they offer you the returns of a blended portfolio minus decades of huge fees. A really dumb combination of stocks and bonds invested over decades will beat a similarly-invested variable annuity every single time. Because of the fees.


Other problems

There are some other problems with variable annuities which I’ll list here for completeness’-sake.

  1. Once in a while, but more often than we’d like, insurance companies totally miscalculate variable annuity payouts and throw themselves into receivership (a kind of bankruptcy for insurance companies.)
  2. State insurance regulators know this, so they really like to see heavy fees to accompany these products, to keep up the capital base of insurance companies, to avoid receivership. That’s not good for you.
  3. The other way insurance companies avoid receivership is to change the rules governing payouts after you’ve already bought in to the variable annuity. Yes, they do this, and that’s not good for you either.
  4. States typically charge a special tax on payouts from variable annuities, possibly to compensate states for that future receivership problem. Also not good.
  5. You owe ordinary income tax (meaning, top tax rates) on variable annuity income. Regular investments in taxable accounts, held for over a year, offer better tax treatment than this.
  6. Variable annuities are roach-motel investments. You can get in easily, but it’s hard to get out, typically unless you pay hefty “surrender charges” if you try to get out within a 5 or 10 year “surrender period.” This is, basically, unconscionable. My advice: Just make like the French army,2 take the pain, and move on to a better investment.
  7. Variable annuities come to you accompanied by unreadable documentation, incalculable payouts, and small-print ‘disclosures.’ Nobody buying into these things can actually explain to themselves how they work.3
  8. That lack of understanding includes your insurance broker. Ask him some time to explain, in plain language, why this is a better deal than a simple blended portfolio of stocks and bonds. Whatever his moving lips appear to say, the real answer is “my fat commission,” which runs about 5 percent of the amount you invested.

As I’ve written here before, I don’t sell any investment product for a living, and no investment company or insurance company is paying me, so I don’t benefit whether you follow my advice or not.

Variable annuities are good for the insurance company because they make excessive fees from them. They are good for your insurance broker/retirement specialist because of the commission.

Good for the insurance company and great for your broker. Not good for you. But hey…

They are not good for you. But hey, as Meatloaf sang, “Two out of three ain’t bad.”

Newspapers of the world: I challenge you to print honest reviews of variable annuities.

But as Derek Smalls said, “They can’t print that.”



A version of this post, without the scatological reference, and with a toned-down version of my critique of how the Financial Infotainment Industrial Complex really operates, ran in the San Antonio Express News.


Please see related posts:

Very simple, final word, on how to invest

Stupid Smart People

Guest Post: The Simplest Investing Approach Ever

Insurance Part 2 – The Good The Optional The Bad

Insurance Part 1 – Risk Transfer Only




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  1.  I’m not so much concerned with the vulgarity. (Although my editor was!) After all, let’s talk truth for a moment: you can’t read the national or international news section of any ‘respectable’ daily paper without worrying that your curious ten year-old will glance over your shoulder and ask you for definitions of ‘beheadings,’ or ‘pedophile,’ or ‘systematic rape.’ I mean, we’ve got worse problems than a little scatology.
  2. Surrender immediately, obviously
  3.  Except apparently this guy at who offers, for an initial $150 fee, (and who knows after that, maybe more?) to analyze your variable annuity and give you a ten page report on all of its features, pluses and minuses. I don’t have any ties to the service myself, I only saw it referred to in the WSJ, but it strikes me as a good idea for people already stuck with these roach motels. Also, note the fact that if you need a ten-page report to describe your investment product then that investment has violated the “Keep It Simple, Smarty” rule of investing.

On Insurance, Part II – The Good, The Optional, & The Bad

Right Way Wrong WayPlease see my previous post, on Insurance as Risk Transfer Only

Good uses of insurance

  1. Car insurance – mandatory and necessary, appropriately transfers risk of sudden damage to car or bodily health away from you to a company that can spread that risk around.
  2. Homeowners and renters insurance – similarly transfers risk of catastrophic damage to real and personal property to a company with enough capital to accept diversified risk.  The wealthier you are when you buy the insurance, the larger the deductible you can and should afford.
  3. Health insurance – transfers the risk of high or catastrophic health-care costs and is absolutely necessary to well-being and wealth.

Optional uses of insurance

If you find yourself the primary or sole caregiver of minor children, and you have limited savings, the next 2 types of risk transfer are mandatory.  Otherwise they’re optional.

  1. Disability Insurance – Transfer the risk of a loss of earnings and earnings potential.  You need to buy enough insurance that you could feed, clothe and house yourself and your dependents.  With no dependents, you have much less need for this type of insurance.
  2. Life Insurance – Remember: This is not a good way to invest.  This is only a good way to provide for minor children or a non-working spouse should you die.  Because I urge life insurance as a risk transfer only, and not as an investment, I lean toward term life insurance for the duration of your children’s minority years.  Once they’re 18, or 22 if college bound, they can fend for themselves.  Term life insurance increases the likelihood that you will calculate only the amount of insurance you need to transfer risk and not get caught up in the sales pitch that life insurance is a good investment.  Remember, it’s not.

Bad uses of Insurance

6. Warranties – I’m indifferent to car warranties, as I don’t know enough about them.  But electronics warranties are a complete waste of your money.  It’s extra insurance you do not need, on an ‘asset’ which depreciates in value faster than you can count backwards from 100.  The warranty company depends on you neglecting to exchange your electronic device, because in 2 years there’s something better out there anyway.  As I wrote earlier, warranties are the ultimate “neglect-based” business, along with life insurance policies.

7. Car Rental Insurance – Chances are you’re already double-covered by your own automobile insurance, as well as insurance from your credit card.

Have you noticed the rental agencies really like to push three difference types of insurance on you?  Unless you’ve got a very special situation, you don’t need that stuff.

“Can I at least put you down for bumper to bumper coverage?”  Stop. Bugging. Me.

6. Variable Annuity – Monstrosity.  The chimera that neither breathes fire nor flies straight.  High cost, low return, illiquid.   Perfect!


Here’s a quick quiz:

Question: Why does the Wall Street Journal always carry headlines such as: “Are variable annuities a good idea or just too costly?” instead of more honest headlines like “Are you a moron who likes to be separated from your money?  Try variable annuities!”? [1]

Answer: An awful lot of insurance company advertisers vie for eyeballs right next to that variable annuity article.


Please see related posts Insurance, Part I – Risk Transfer Only


Insurance Part III – Calculations of Life Insurance as an investment

[1] The authors of these variable annuity articles seemingly know they’re terrible, but they also seem to know who pays the bills.  I feel badly for them, writing the articles must be torture.  Here’s a few recent samples from the Wall Street Journal this Spring: “Cheaper Annuities With Benefits,” “New Annuity Guarantees Raise Questions,” and “They’re Changing Our Annuity!”

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