Are all Annuities Scams?

Chapter 12 Summary:

Most annuity sales are focused on the guaranteed income stream, and trick the buyer into thinking they are getting an investment return, instead of their own money back. Other sales are focused on the bogus guaranteed growth in the withdrawal account, or income guarantee account that are just imaginary accounts where the money cannot be withdrawn in a lump sum. These accounts are not real money, only an accounting entry! Most annuities are worded, designed, and sold in such a manner as to confuse the buyer. Few buyers understand what they have purchased, and in truth, many agents don’t fully understand what they are selling.

However, if the guaranteed income comes without a rider cost or if the income rider is not included, and if the cash value has an indexing crediting method that has a history of annual returns in excess of 5%, then the annuity could be a competitive investment when compared with corporate bonds. If properly understood and focused on the cash value growth, an annuity can be a good investment.

If an indexed annuity is viewed as an alternative to an account that pays low interest, such as bank CDs, then indexed annuities may be a reasonable investment. Again, it is likely a better investment if the income guarantee and its associated cost are not included. 

Finally, annuities may be an option for people who cannot qualify for life insurance because of medical reasons. There is no medical exam necessary to purchase an annuity. Annuities can be used in tax-deferred accounts where life insurance or a MEC cannot be used.