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Since the stock market crash of 2008, investors have been more susceptible to recommendations by their brokers to buy annuities. This is because brokers represent annuities as a way of guaranteeing income for life, while protecting principal from a market decline. An annuity is a form of insurance that offers a series of payments for a period of time. An annuity can be either fixed or variable. Fixed annuities are invested in conservative investments, and the return to investors may vary, but a minimum rate of return is established. Variable annuities are higher in risk when compared to fixed annuities and depend on how the stock market is performing. Variable annuity buyers have the option to allocate the cash invested into different asset classes such as mutual funds, indices, fixed income investments or bonds, and cash.

Annuities can also be subcategorized as immediate or deferred. Immediate annuities offer a stream of cash payments from the moment of annuitization, or the annuity's inception. Deferred variable annuities allow an investor to place cash in different asset classes, which can grow tax deferred if market conditions are favorable. Investors in deferred variable annuities must agree to limit withdrawals to a certain percentage for a specified period of time or pay a penalty.

Investors should be concerned about the risks of owning deferred variable annuities. Apart from being extremely difficult to understand, deferred variable annuities require that the cash invested be locked up for a certain period of time. If investors want to access their cash, the will have to pay a hefty penalty. Also, terms and conditions favorable to insurance companies are hidden in the fine print. Investors are rarely informed of the high sales commissions, surrender costs, and other expenses associated with owning a deferred variable annuity. Furthermore, investors can lose their principal guarantee or guaranteed lifetime income if too much is withdrawn during the deferral period, or if the investor chooses not to annuitize. Last, the touted tax advantages of deferred variable annuities are washed when investors take distributions because they are taxed as ordinary income, not as capital gains.

Have you suffered a loss of principal in your deferred variable annuity? If so, call Robert Pearce at the Law Offices of Robert Wayne Pearce, P.A. for a free consultation.

The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Attorney Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. The lawyers at our law firm are devoted to protecting investors' rights throughout the United States and internationally! Please visit our website,, post a comment, call (800) 732-2889, or email Mr. Pearce at for answers to any of your questions about this blog post and/or any related matter.