Should you take a variable annuity buyback offer?

Recently, several variable annuity companies have sent letters to their customers offering a “buyback” of their variable annuity contracts with guaranteed benefits. These might include offers to waive surrender charges, pay additional cash if the annuity is surrendered, or both.

Insurers are doing this because they’re holding significant reserves and capital based on the possible cost of the guarantees. Of course, the actual future cost (to the company) or benefit (to the customer) of the guarantee isn’t known. That’s why it’s difficult to know whether you should take the buyout if you get an offer.

If you get a buyback offer, make sure you know what you’re giving up if you take the offer. Many times, I’ve visited with clients who believe they have a 5% or 6% guaranteed account value in the future, without understanding that the accumulation is used for a payout over many years, not provided as a lump sum.  If the annuity doesn’t fit your needs, a buyout might be worth considering.

If you’re confused about your variable annuity and have an offer from your insurer, this is the time to have an independent professional review your entire financial situation to see if you should take the offer or keep the product.  Call us at 847.230.9636 to see how we can help.