I’ve been warning investors about variable annuities for a long time. Hartford Insurance has issued a letter to its variable annuity investors warning that the guarantee will be revoked if they don’t have 40% in bonds. Apparently Hartford has a contractual right hidden within the pages of the prospectus. Most investors need a doctorate to understand what they’re signing up for with variable annuities. In this case, as is most often the case with variable annuities, the investor loses.
Hartford is one of many insurers seeking to reduce exposure to what have turned out to be costly guarantees on variable annuities—which are tax-advantaged products for investing in stock and bond funds. Insurers have been clamping down on fund choices, raising fees, blocking additional account contributions and even trying to buy back the contracts.
But Hartford’s new move may be the first that could result in owners inadvertently losing their long-held guarantees. The company is exercising what it says is a contractual right to impose new investing restrictions in order for owners to maintain guarantees, according to a letter dispatched last month by Hartford to annuity holders. It is requiring at least 40% of clients’ money to be in fixed-income funds. If clients don’t allocate their holdings accordingly by Oct. 4, the guarantee “WILL BE REVOKED,” the letter declared in bold type.
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