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Investments and Contracts

By Portage County Business Council

By LouAnn Schulfer,  AWMA®, AIF®
Accredited Wealth Management Advisor®
Accredited Investment Fiduciary

There are investments, and then there are contracts.  Contracts that one may use as part of their financial strategy can have an investment component to them, but differ from ordinary investments.  Annuities and life insurance are examples of contracts that are offered by insurance companies.  What makes them significantly different, and more complex than ordinary investments are the contractual obligations entered into by both the sponsor company and the client/contract owner.

I often get asked if annuities are good or if they are bad.  My answer:  it depends.  Like any contract, it depends what is being contractually offered to you and in return, what your obligations and expenses are.  I had a new client who owned several annuity contracts that served the purpose of guaranteed income.  After years of owning the contracts and paying the rider fees (for the guaranteed income) he had not taken any income from any of the contracts because he did not need it, and would not need the additional income streams going forward.  He had agreed to the annuity contracts because he understood that there were guarantees.  What he was interested in, however, was a guarantee of principal protection.  He was then, in the wrong annuity contracts for his needs and intentions.  The contracts he was in would have been suitable for someone wishing for income stability, such as in retirement.

I had a conversation with someone a few months ago who owned a life insurance policy with a cash value component.  She said that she purchased it because her agent told her it was a great retirement account.  In fact, life insurance cash value does not have contractual guarantees for retirement.  The right contract to be in, if you are looking for retirement guarantees, may be an annuity contract, of which there are many variations.  The standard contractual guarantee offered in a life insurance policy, is a payment of money to a beneficiary upon death of an insured.  There may be other riders or provisions with guarantees as well, depending on the contract.  In this case though, unfortunately, her contract that was either misrepresented or misunderstood.

Contracts come with legal obligations from the issuer that ordinary investments do not.  This can benefit the contract owner/client significantly in the right circumstances.  It could also be a detriment if the contract owner/client didn’t understand their obligations and merely thought of the contract as an investment.

LouAnn Schulfer is co-owner of Schulfer & Associates, LLC Financial Professionals and can be reached at (715) 343-9600 or

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor.  Member FINRA/SIPC.  Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing.  Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply.  Variable annuities are subject to market risk and may lose value.

Riders are additional guarantee options that are available to an annuity or life insurance contract holder.  While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing.  Guarantees are based on the claims paying ability of the issuing insurance company.