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AVOID FINANCIAL PRODUCTS WITH SURRENDER CHARGES
The surrender charge can last any number of years. I have seen annuities that come with a 15-year surrender charge period and up to a 15 percent surrender charge to go along with it. The surrender charge period is the period the annuity product will charge you to sell the product. Think about it. The advisor gets paid upfront when the product is sold to you. Then, months or years later when you figure out it is a bad deal for you, the insurance company penalizes you with a surrender charge to sell it. If the product is so great, why penalize the client for selling it? If the product is as good as the sales pitch, then the client should want to own the product for many years. The commission the advisor receives is usually correlated to the surrender charge. If you purchase an annuity with a 7-year surrender period, it normally begins with a 7 percent surrender charge and drops over the 7-year period until it finally reaches zero.
All annuities come with a cost. Do not let anyone tell you differently. This is an inherent flaw in most of these products. The expense of owning an annuity can be mind numbing. If you are paying the insurance company 4 percent per year, you are missing out on that return on your investment. I know the promises made by the insurance company sound great, but they come with a cost that will eat up your overall return.
My advice to you is to do your homework. Research not only the product, but also the advisor selling it. Work with a Fiduciary and you will not be subject to a sales pitch with a potentially high commission product being sold to you. Fiduciaries work on fees based on assets under management. They do not get paid commission to sell products to clients. Fiduciaries build portfolios to meet client needs. There is zero incentive to sell products with lucrative commissions behind them.