Posted By Paul
As I did my research on annuities I found some links that I wanted to pass on:
AnnuityTruth.org - specializes in info for annuities for seniors
Ultimate Guide to Retirement: Annuities - A great page from CNNMoney with all kinds of info about the different types of annuities. A must read for anyone thinking of purchasing an annuity.
Useful info to find out more about annuities.
Showing posts with label annuity. Show all posts
Showing posts with label annuity. Show all posts
Sunday, October 18, 2009
Wednesday, October 14, 2009
What the heck is an annuity part 4: Variable with Life
Posted By Paul
This is going to be my next to last posting in the annuity series (my final posting will be a collection of useful info sources I found on annuities). I'm going to talk about the most controversial member of the annuity family, the variable annuity with life.
This is a very strange investment vehicle in that it is a mix of life insurance and fund investment. Essentially you put money every month into the variable annuity, part of that payment goes into the insurance component of your account (essentially like a life insurance premium) and the other part goes into "sub accounts" (mutual funds that you can choose from a family).
So what is the appeal? Well a common argument is that you get life insurance AND a retirement vehicle. You often hear of the idea that down the road you borrow against the cash value of your annuity which means you get your money tax free. I've heard of financial advisers presenting this idea as if it were something they had thought of.
What is the downside? Here are two of the most basic arguments against variable annuities with life insurance:
1) If you want life insurance, just go and buy life insurance - my research into this mentions that generally if you compare the money you pay for life insurance through a variable annuity to just getting a normal life insurance policy you'll discover that the life insurance through the annuity is MUCH more expensive.
2) Just as with regular variable annuities, watch out for fees. Brokerage fees, fund fees, commissions, maintenance fees. They can eat up your investment quickly.
I also found in my research that when you hear about "life insurance scams" that most often it is in the form of a variable annuity with life insurance product. This doesn't surprise me since the whole variable annuity with life insurance is a great product if you want to confuse and deceive someone since you have a variable annuity (which is already a complicated and poorly defined product) and you toss in life insurance (which is a complicated thing unto itself). A variable annuity with life insurance takes these two complicated things and mashes them together into a product that is almost impossible to understand, and makes it VERY easy to hide fees.
To give a personal slant to this, I had a variable annuity/life insurance policy for a short time. I opened it and then later closed it and luckily I didn't lose much.
So what did I learn from my brush with variable annuity/life insurance policies?
-They are confusing. When I first invested I THOUGHT I knew how it all worked but only after watching it closely did I see the fees and how the affected my return on investment.
-There is inertia and psychology involved. For example when I opened my annuity I put in a small amount of money and I watched it closely. I shudder to think what would have happened if I had put my whole nest egg in there and just stopped checking it and figured it was doing fine.
-They have all kinds if little ways to keep the money rolling in. With my annuity I would get a letter every few months saying that I had been offered an increase in my life insurance death benefit, and that for just X dollars more a month I would get an additional coverage of Y dollars in death benefit. The worst part was that the letters said that unless I contacted them they would assume I wanted the increase in benefit (and premium). It got to be annoying to have to write or call them every few month and tell them NOT to raise my premium. Imagine if I had just ignored the letters? Then every few months my premium would have gone up a little and who knows where it would have ended up.
It sounds like I'm pretty down on this type of product, and I would have to say that for the most part I am.
If you read my previous article on variable annuities you may recall that I suggested going into it ASSUMING it's a bad investment and then see if you can be convinced otherwise. For the variable annuity with life insurance it's so complicated and easily prone to hidden fees and catches that I would take my warning even further.
For a variable annuity/life insurance product I would suggest the following rules:
1) If you aren't taking full advantage of 401k/Roth IRA options then don't even think of looking at this product.
2) If someone offers you an annuity life insurance product, find out what it would cost to get the equivalent death benefit with out the annuity part.
3) Take some time to find the fees. They are in there, so see where they are and how much they are, ask about broker commissions, fund fees, maintenance fees and so on.
4) Do not invest in this product unless you can get an impartial knowledgeable person to think it's a good idea. When I say impartial I mean someone who is not making or losing money based on whether or not you invest in this product. This is NOT the type of product where you should trust the person who is selling you the product.
5) Do the research. This is also NOT the type of product where you should think: "well my aunt has one and she likes it, so mine's probably okay". There is so much variety among these products that your aunt could have a totally different TYPE of product, and maybe your aunt has one but doesn't really understand how it works either.
6) If anyone suggests that you invest in this type of product, ask yourself: "Would this person make money off of my investment?" If the answer is yes, then take EVERYTHING they say with a huge grain of salt.
There might be people in situations where this type of product is a good idea, but I would predict that this type of investment is probably the most commonly owned "bad" investment.
If you are someone who has this type of product and you don't really understand it I would do some serious research into your product, just some basic things like:
1) Find out what your death benefit is and do a little research to see what it cost you to get the same benefit from a reputable insurance company without all of the annuity stuff.
2) Check your subaccounts, find out what their maintenance fees are, compare them to mutual funds at Vanguard.
If you are at all worried after doing the above, then consider finding a financial adviser that is paid by the hour and seeing what they think, or perhaps just find a trusted friend or family member that is "into investing" and have them look over the account and see what they think. The worst thing to do is to be in a bad investment and continually paying month after month.
This is going to be my next to last posting in the annuity series (my final posting will be a collection of useful info sources I found on annuities). I'm going to talk about the most controversial member of the annuity family, the variable annuity with life.
This is a very strange investment vehicle in that it is a mix of life insurance and fund investment. Essentially you put money every month into the variable annuity, part of that payment goes into the insurance component of your account (essentially like a life insurance premium) and the other part goes into "sub accounts" (mutual funds that you can choose from a family).
So what is the appeal? Well a common argument is that you get life insurance AND a retirement vehicle. You often hear of the idea that down the road you borrow against the cash value of your annuity which means you get your money tax free. I've heard of financial advisers presenting this idea as if it were something they had thought of.
What is the downside? Here are two of the most basic arguments against variable annuities with life insurance:
1) If you want life insurance, just go and buy life insurance - my research into this mentions that generally if you compare the money you pay for life insurance through a variable annuity to just getting a normal life insurance policy you'll discover that the life insurance through the annuity is MUCH more expensive.
2) Just as with regular variable annuities, watch out for fees. Brokerage fees, fund fees, commissions, maintenance fees. They can eat up your investment quickly.
I also found in my research that when you hear about "life insurance scams" that most often it is in the form of a variable annuity with life insurance product. This doesn't surprise me since the whole variable annuity with life insurance is a great product if you want to confuse and deceive someone since you have a variable annuity (which is already a complicated and poorly defined product) and you toss in life insurance (which is a complicated thing unto itself). A variable annuity with life insurance takes these two complicated things and mashes them together into a product that is almost impossible to understand, and makes it VERY easy to hide fees.
To give a personal slant to this, I had a variable annuity/life insurance policy for a short time. I opened it and then later closed it and luckily I didn't lose much.
So what did I learn from my brush with variable annuity/life insurance policies?
-They are confusing. When I first invested I THOUGHT I knew how it all worked but only after watching it closely did I see the fees and how the affected my return on investment.
-There is inertia and psychology involved. For example when I opened my annuity I put in a small amount of money and I watched it closely. I shudder to think what would have happened if I had put my whole nest egg in there and just stopped checking it and figured it was doing fine.
-They have all kinds if little ways to keep the money rolling in. With my annuity I would get a letter every few months saying that I had been offered an increase in my life insurance death benefit, and that for just X dollars more a month I would get an additional coverage of Y dollars in death benefit. The worst part was that the letters said that unless I contacted them they would assume I wanted the increase in benefit (and premium). It got to be annoying to have to write or call them every few month and tell them NOT to raise my premium. Imagine if I had just ignored the letters? Then every few months my premium would have gone up a little and who knows where it would have ended up.
It sounds like I'm pretty down on this type of product, and I would have to say that for the most part I am.
If you read my previous article on variable annuities you may recall that I suggested going into it ASSUMING it's a bad investment and then see if you can be convinced otherwise. For the variable annuity with life insurance it's so complicated and easily prone to hidden fees and catches that I would take my warning even further.
For a variable annuity/life insurance product I would suggest the following rules:
1) If you aren't taking full advantage of 401k/Roth IRA options then don't even think of looking at this product.
2) If someone offers you an annuity life insurance product, find out what it would cost to get the equivalent death benefit with out the annuity part.
3) Take some time to find the fees. They are in there, so see where they are and how much they are, ask about broker commissions, fund fees, maintenance fees and so on.
4) Do not invest in this product unless you can get an impartial knowledgeable person to think it's a good idea. When I say impartial I mean someone who is not making or losing money based on whether or not you invest in this product. This is NOT the type of product where you should trust the person who is selling you the product.
5) Do the research. This is also NOT the type of product where you should think: "well my aunt has one and she likes it, so mine's probably okay". There is so much variety among these products that your aunt could have a totally different TYPE of product, and maybe your aunt has one but doesn't really understand how it works either.
6) If anyone suggests that you invest in this type of product, ask yourself: "Would this person make money off of my investment?" If the answer is yes, then take EVERYTHING they say with a huge grain of salt.
There might be people in situations where this type of product is a good idea, but I would predict that this type of investment is probably the most commonly owned "bad" investment.
If you are someone who has this type of product and you don't really understand it I would do some serious research into your product, just some basic things like:
1) Find out what your death benefit is and do a little research to see what it cost you to get the same benefit from a reputable insurance company without all of the annuity stuff.
2) Check your subaccounts, find out what their maintenance fees are, compare them to mutual funds at Vanguard.
If you are at all worried after doing the above, then consider finding a financial adviser that is paid by the hour and seeing what they think, or perhaps just find a trusted friend or family member that is "into investing" and have them look over the account and see what they think. The worst thing to do is to be in a bad investment and continually paying month after month.
Sunday, October 11, 2009
What the heck is an annuity part 3: Variable
Posted By Paul
As I go through the various types of annuities I seem to be gradually moving towards the more controversial types of annuities, and that brings us to one of the more controversial members of the annuity family, the variable annuity.
So what's a variable annuity? Here are the basic characteristics of a variable annuity:
1) Tax deferred - gains are only taxed when you withdraw them.
2) Fund based - your money is going into some sort of mutual or bond fund that you select (generally an annuity offers 6-12 funds that you choose from).
The variable part just means that your money is going into an investment, your return is based on how well those investments do. There is no guaranteed return.
I'm guessing that a lot of you are thinking: "This sort of sounds like a 401k." and you're right. It is SORT OF like a 401k, but that SORT OF is important.
In my research the main thing to watch in this sort of annuity is the fees. There are often high management fees, commissions for the agent who sold it to you, and other little fees like that. The fees may seem like a minor thing, but imagine if the fees end up being 2% of your total investment, you need to make 2% to just break even, and even more to beat inflation.
It seems that these fees are what typically give these types of investments a bad name. Even if you don't see any specific up front fees, the funds themselves might have a very high expense ratio. To see what that means go to my earlier post:
A Few Quick Tips On Mutual Funds
The question now is, are variable annuities something to avoid at all costs? Well I'd say that you should ONLY look at a variable annuity if you are already taking full advantage of your allowed contributions for your 401k AND Roth IRA.
If you decide to look into a variable annuity I would be VERY careful. I hate to recommend paranoia but this is one of those situations where I would suggest going into the situation with a very skeptical eye. Assume that the variable annuity is of the "bad" type (high commissions, high fees, etc.) and only invest if you are convinced this isn't the case.
Also, I would suggest that you observe the agent you are dealing with very closely. If they seem to be trying to conceal or downplay various fees and commissions, I would be VERY careful.
Finally, if anyone tells you that you should take your IRA or 401k and roll it into a variable annuity, consider this a HUGE RED FLAG! I found several articles that said that this sort of suggestion is essentially like saying:
"Hey let's take your big pile of money in a low fee environment and roll it into an investment with high fees and commissions without any added tax benefits."
If you have money in a variable annuity, I would suggest that you take a very hard look at it and see just how much you are paying in fees and then see how that is affecting your investments.
As I go through the various types of annuities I seem to be gradually moving towards the more controversial types of annuities, and that brings us to one of the more controversial members of the annuity family, the variable annuity.
So what's a variable annuity? Here are the basic characteristics of a variable annuity:
1) Tax deferred - gains are only taxed when you withdraw them.
2) Fund based - your money is going into some sort of mutual or bond fund that you select (generally an annuity offers 6-12 funds that you choose from).
The variable part just means that your money is going into an investment, your return is based on how well those investments do. There is no guaranteed return.
I'm guessing that a lot of you are thinking: "This sort of sounds like a 401k." and you're right. It is SORT OF like a 401k, but that SORT OF is important.
In my research the main thing to watch in this sort of annuity is the fees. There are often high management fees, commissions for the agent who sold it to you, and other little fees like that. The fees may seem like a minor thing, but imagine if the fees end up being 2% of your total investment, you need to make 2% to just break even, and even more to beat inflation.
It seems that these fees are what typically give these types of investments a bad name. Even if you don't see any specific up front fees, the funds themselves might have a very high expense ratio. To see what that means go to my earlier post:
A Few Quick Tips On Mutual Funds
The question now is, are variable annuities something to avoid at all costs? Well I'd say that you should ONLY look at a variable annuity if you are already taking full advantage of your allowed contributions for your 401k AND Roth IRA.
If you decide to look into a variable annuity I would be VERY careful. I hate to recommend paranoia but this is one of those situations where I would suggest going into the situation with a very skeptical eye. Assume that the variable annuity is of the "bad" type (high commissions, high fees, etc.) and only invest if you are convinced this isn't the case.
Also, I would suggest that you observe the agent you are dealing with very closely. If they seem to be trying to conceal or downplay various fees and commissions, I would be VERY careful.
Finally, if anyone tells you that you should take your IRA or 401k and roll it into a variable annuity, consider this a HUGE RED FLAG! I found several articles that said that this sort of suggestion is essentially like saying:
"Hey let's take your big pile of money in a low fee environment and roll it into an investment with high fees and commissions without any added tax benefits."
If you have money in a variable annuity, I would suggest that you take a very hard look at it and see just how much you are paying in fees and then see how that is affecting your investments.
Saturday, September 26, 2009
What the heck is an annuity part 2: fixed deferred
Posted By Paul
I came across another major annuity type called the "fixed deferred" or "fixed interest deferred" annuity that I wanted to talk about.
A fixed interest deferred annuity is kind of like a savings account, so I'm going to assume we all know what a savings account is and describe the annuity in contrast to that.
1) Like a savings account a fixed annuity gives you a known return on your money. In fact with fixed annuities you generally "lock in" an interest rate for some amount of time (like 5 years) and then after that interval has expired you "lock in" a rate again. One example is that Vanguard has a fixed annuity where if you open today you get a rate of 2.65% for the next 5 years. Note that this isn't a bad rate, in fact it's better than most CD's you can find right now.
BEWARE: I read about places where you get some awesome rate for the first year and then after that it resets to something lame, only now they have your money and you have to go through all kinds of hassle to move it.
2) Unlike a savings account, any interest you get is tax deferred. You don't pay taxes on it until you take it out.
3) Unlike a savings account, you can't just deposit and withdraw money whenever you feel like it. They vary, but it seems like most places have rules about how and when you can withdraw your money. The one through Vanguard for example says you can take out 10% of your savings in a year without penalty (but be careful, as with all tax deferred vehicles there can be tax consequences for getting your money out early). From my research it also seems that in most cases to add money you have to open a whole new annuity.
The above points generally capture what this type of annuity is. It's sort of like a 401k (you get the tax deferred part) and kind of like a savings account or CD (guaranteed interest).
So what are the pros and cons? Here is what I was able to come up with:
Pros: You get all the perks of a savings account PLUS tax deferral.
Cons: This is money you shouldn't plan on touching until the terms of the annuity are met. If you needed to "break open the piggy bank" early then tax and penalties could eat in to your money fast.
Overall, I think that this sort of annuity isn't a bad thing to consider if you've already given all you can to your 401k AND Roth IRA and still have money to sock away. When considering this sort of annuity BE SURE TO READ THE FINE PRINT and make sure you know what you're getting. Key questions to ask are:
1) What is my rate and how long does it lock in?
2) Is this rate an introductory rate?
3) How can I withdraw my money and what kind of withdrawal limits/penalties are there?
4) Is there any way to deposit additional money?
One interesting point is that when you compare this to my previous post:
What the heck is an annuity? Part 1
You'll see that this type of annuity is VERY different from the type I describe in my earlier post. As I mentioned before (and will mention again) that's one thing I REALLY don't like about annuities, it's such a broad term.
Once again I'll close with a quote from Warren Buffett about business investing, but it applies just as well to investment vehicles:
"Never invest in a business you cannot understand. "
I came across another major annuity type called the "fixed deferred" or "fixed interest deferred" annuity that I wanted to talk about.
A fixed interest deferred annuity is kind of like a savings account, so I'm going to assume we all know what a savings account is and describe the annuity in contrast to that.
1) Like a savings account a fixed annuity gives you a known return on your money. In fact with fixed annuities you generally "lock in" an interest rate for some amount of time (like 5 years) and then after that interval has expired you "lock in" a rate again. One example is that Vanguard has a fixed annuity where if you open today you get a rate of 2.65% for the next 5 years. Note that this isn't a bad rate, in fact it's better than most CD's you can find right now.
BEWARE: I read about places where you get some awesome rate for the first year and then after that it resets to something lame, only now they have your money and you have to go through all kinds of hassle to move it.
2) Unlike a savings account, any interest you get is tax deferred. You don't pay taxes on it until you take it out.
3) Unlike a savings account, you can't just deposit and withdraw money whenever you feel like it. They vary, but it seems like most places have rules about how and when you can withdraw your money. The one through Vanguard for example says you can take out 10% of your savings in a year without penalty (but be careful, as with all tax deferred vehicles there can be tax consequences for getting your money out early). From my research it also seems that in most cases to add money you have to open a whole new annuity.
The above points generally capture what this type of annuity is. It's sort of like a 401k (you get the tax deferred part) and kind of like a savings account or CD (guaranteed interest).
So what are the pros and cons? Here is what I was able to come up with:
Pros: You get all the perks of a savings account PLUS tax deferral.
Cons: This is money you shouldn't plan on touching until the terms of the annuity are met. If you needed to "break open the piggy bank" early then tax and penalties could eat in to your money fast.
Overall, I think that this sort of annuity isn't a bad thing to consider if you've already given all you can to your 401k AND Roth IRA and still have money to sock away. When considering this sort of annuity BE SURE TO READ THE FINE PRINT and make sure you know what you're getting. Key questions to ask are:
1) What is my rate and how long does it lock in?
2) Is this rate an introductory rate?
3) How can I withdraw my money and what kind of withdrawal limits/penalties are there?
4) Is there any way to deposit additional money?
One interesting point is that when you compare this to my previous post:
What the heck is an annuity? Part 1
You'll see that this type of annuity is VERY different from the type I describe in my earlier post. As I mentioned before (and will mention again) that's one thing I REALLY don't like about annuities, it's such a broad term.
Once again I'll close with a quote from Warren Buffett about business investing, but it applies just as well to investment vehicles:
"Never invest in a business you cannot understand. "
Friday, September 18, 2009
What the heck is an annuity? Part 1 - Single Premium Fixed Immediate Lifetime
Posted By Paul
As I try to become better at understanding the financial world, one word that pops up every now and then is 'annuity'.
I realized recently that I really don't have any idea what one is. I have this vague sense that I'm not interested in them, but that's not really based on anything rational, so I thought I'd do some research and share what I've found.
Here's what I've learned:
First of all, annuity is a REALLY broad term. To define it in terms that apply to all of the different flavors you end up with something like:
An annuity is an agreement (generally with an insurance company) to pay out money for a period of time.
Pretty general huh? Well it is, and that's probably why annuities get such a bad reputation, there are so many different flavors of annuity (not to mention many providers) that it's really easy to end up with a bad one.
So I'm going to start off with what I consider to be the simplest type of annuity: the single premium fixed immediate lifetime annuity.
Quite a long name, but the terms make sense if you take them individually:
Singe Premium - means there is one premium (essentially you buy it with a lump sum)
Fixed - means the payments don't vary
Immediate - means that the payments start immediately
Lifetime - means the payments continue for as long as you are alive
This type of annuity is essentially a policy that you buy with an insurance company that says that the insurance company will pay you a certain amount of money for the rest of your life.
A hypothetical example, if I were an insurance company, I might say that if you pay me $50,000 today then I will pay you $100 a month for the rest of your life.
I found a very simple web annuity quote calculator and asked it the question:
If I were age 40 (the calculator had 40 as the minimum age) and wanted an annuity that paid me $200 a month until I died, what would it cost me?
The answer? About $41k. So the question then is, is it worth it? If I just took my $41k and stuck it under the mattress and took out $200 a month, how long would that last? The quick math says I would run out of money in about 17 years. So from that calculation it seems like a pretty good deal since I plan on living longer than 17 years.
But of course if you didn't buy the annuity you probably wouldn't just put the money in your mattress, so how best to compare that?
That gets difficult, but luckily I found a savings calculator that you can use to see how long savings will last assuming a certain APR and monthly withdrawal.
If you're curious the savings calculator is here.
Using this calculator, if I start with $41k and take out $200 a month then the amount it will last depends on the APR, but for a few values comes to:
24 years at 3% interest
28.8 years at 4% interest
38.6 years at 5% interest
Interesting. At this point you start to see the trade off between having the annuity and keeping the money for yourself. Here are some of the pros and cons of the annuity:
Pros:
1) Takes some of the uncertainty out of retirement savings, with this sort of annuity you know exactly how much you'll having coming in for the rest of your life.
2) Low risk, assuming the insurance company stays solvent, you'll get your money.
Cons:
1) It's possible that you could meet or beat the returns by just managing the money yourself.
2) If you die an early and untimely death, no money is paid to beneficiaries the money is just gone (note that there ARE annuities that include a death benefit but they cost more).
3) Your lump sum is gone, so if something happens where you wanted that lump sum back, you're out of luck.
Overall, this type of annuity doesn't seem like a terrible thing from an investment standpoint, but remember, this is just ONE type of annuity, there are so many types of annuities out there that you REALLY need to be careful to make sure you're getting what you're expecting.
I'll close this (and probably all my annuity related posts) with a quote from Warren Buffett (he uses it to refer to investing it in a particular business, but I think it applies just as well to any investment vehicle):
"Never invest in a business you cannot understand. "
As I try to become better at understanding the financial world, one word that pops up every now and then is 'annuity'.
I realized recently that I really don't have any idea what one is. I have this vague sense that I'm not interested in them, but that's not really based on anything rational, so I thought I'd do some research and share what I've found.
Here's what I've learned:
First of all, annuity is a REALLY broad term. To define it in terms that apply to all of the different flavors you end up with something like:
An annuity is an agreement (generally with an insurance company) to pay out money for a period of time.
Pretty general huh? Well it is, and that's probably why annuities get such a bad reputation, there are so many different flavors of annuity (not to mention many providers) that it's really easy to end up with a bad one.
So I'm going to start off with what I consider to be the simplest type of annuity: the single premium fixed immediate lifetime annuity.
Quite a long name, but the terms make sense if you take them individually:
Singe Premium - means there is one premium (essentially you buy it with a lump sum)
Fixed - means the payments don't vary
Immediate - means that the payments start immediately
Lifetime - means the payments continue for as long as you are alive
This type of annuity is essentially a policy that you buy with an insurance company that says that the insurance company will pay you a certain amount of money for the rest of your life.
A hypothetical example, if I were an insurance company, I might say that if you pay me $50,000 today then I will pay you $100 a month for the rest of your life.
I found a very simple web annuity quote calculator and asked it the question:
If I were age 40 (the calculator had 40 as the minimum age) and wanted an annuity that paid me $200 a month until I died, what would it cost me?
The answer? About $41k. So the question then is, is it worth it? If I just took my $41k and stuck it under the mattress and took out $200 a month, how long would that last? The quick math says I would run out of money in about 17 years. So from that calculation it seems like a pretty good deal since I plan on living longer than 17 years.
But of course if you didn't buy the annuity you probably wouldn't just put the money in your mattress, so how best to compare that?
That gets difficult, but luckily I found a savings calculator that you can use to see how long savings will last assuming a certain APR and monthly withdrawal.
If you're curious the savings calculator is here.
Using this calculator, if I start with $41k and take out $200 a month then the amount it will last depends on the APR, but for a few values comes to:
24 years at 3% interest
28.8 years at 4% interest
38.6 years at 5% interest
Interesting. At this point you start to see the trade off between having the annuity and keeping the money for yourself. Here are some of the pros and cons of the annuity:
Pros:
1) Takes some of the uncertainty out of retirement savings, with this sort of annuity you know exactly how much you'll having coming in for the rest of your life.
2) Low risk, assuming the insurance company stays solvent, you'll get your money.
Cons:
1) It's possible that you could meet or beat the returns by just managing the money yourself.
2) If you die an early and untimely death, no money is paid to beneficiaries the money is just gone (note that there ARE annuities that include a death benefit but they cost more).
3) Your lump sum is gone, so if something happens where you wanted that lump sum back, you're out of luck.
Overall, this type of annuity doesn't seem like a terrible thing from an investment standpoint, but remember, this is just ONE type of annuity, there are so many types of annuities out there that you REALLY need to be careful to make sure you're getting what you're expecting.
I'll close this (and probably all my annuity related posts) with a quote from Warren Buffett (he uses it to refer to investing it in a particular business, but I think it applies just as well to any investment vehicle):
"Never invest in a business you cannot understand. "
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