Q: I have a variable annuity with a major insurance company. They have made me an offer of an enhanced surrender. The offer is my contract value plus 20 percent of my payment base. They are making this offer because of high market volatility, decline in the equity markets and low interest rates. In other words, it's costing them money to maintain these accounts. I don't have to accept the offer. My question: Should I go for this or not?
Ray, Sacramento
A: Excellent question! Annuity companies offering a "buy out" of their rich contracts has become fairly common.
To determine if it makes sense for you to take the deal, it really boils down to this question: Do you need the income this annuity will generate, or would you prefer the lump sum of increased cash? If you do need the income, it probably makes sense to keep the contract and enjoy the lifetime income that this rich contract will provide.
If you take the cash, you would probably have many options that would allow you to invest and grow your money in a less expensive vehicle, as these variable annuities are typically loaded with high fees.
Your situation is fairly complex and comprehensive; I would advise you to look at it with your wealth advisor to weigh the pros and cons--this may be your best option.
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