What is unclear is, "Then why do investors love them??" Well because of:
- Protection of principal
- Predictable future minimum values
- Lack of market risk
- Guaranteed lifetime income
- Leveraged death benefits for heirs
- Inflation protection
Chapter 15 trashes Variable Annuities (VAs), which they mostly deserve. But the chapter contained such a glaring error that it warrants examination. The author (we don't really know if it's Ken Fisher) states that the annuity subaccounts or separate accounts are subject to the financial risk of the insurance company, which is not true. That's why they are called "separate" accounts. The insurance company can go bankrupt but your subaccounts will not go with them.
Plus, the vast majority of these annuities- to the credit of the advisers who sell them -are set up with one or more principal, growth or income guarantees. I don't use VAs anymore because of the high fees necessary to avoid the volatility of the separate accounts.