It can even be worse than that.Another way many of these insurance companies get you is their limit on gains is PER MONTH.
Like they say, 12% max per year... But it's really 1% per month.
So, this past month, we've made like 4%, but you will only get 1%, then next month, it will go down 2%, and you'll get 0% (which is good I guess), and then next month it will go up 3%, and you'll get 1%.
So normal investors will get 5% over 3 months, plus the dividends, and you'll only get 2%.
The market might go up 11% over 12 months, and your max is 12%, but you may end up only getting 4% based on how each month plays out.
The contract is 100% written to make the insurance company money, not you.
I have seen one where the annual cap is broken out monthly like you describe, but the application of the downside protection is only applied after netting out all monthly returns for the year. However, during the monthly calculations, there is no downside protection on a monthly basis.
So, if the market is down 4% in January, you get the full 4% drop. But if the market is up 4%, you are capped at 1%. At the end of 12 months, if the sum is negative, then the downside protection kicks in.
Not to defend the advisor, but he might not have been lying when he said the cap never changes during the 10 year period. If they run their calculations like I illustrated, it would almost be impossible for them to ever come close to the cap. In addition, as others have mentioned, the contract could have participation rates or spreads which could be manipulated. Those are the 3 levers the insurance companies have - caps, spreads, and participation rates. They can give you one or two, but as long as they control one, they can make the contract do whatever they want.
Don't buy this product.
Statistics: Posted by Darth Vanguard — Fri Mar 29, 2024 10:42 pm — Replies 32 — Views 2351