Independent Review of the AIG – Polaris Choice IV Variable Annuity

What’s covered in this Review?

In this review we’ll cover the following information on the AIG – Polaris Choice IV Variable Annuity:

  • Product Type
  • Fees
  • Current Rates
  • Realistic long term investment expectations
  • What to expect, and what not to expect

If you’re looking for performance and protection from a single investment, then the AIG Polaris Choice IV Variable Annuity might catch your eye. The name alone says a lot – Polaris the North Star signifies direction; Polaris the manufacturer of all-terrain vehicles signifies travel. Can this annuity really give you the direction and traction you need to meet all your retirement goals?

The Polaris Choice IV is a variable annuity designed to do two things: it grows your money to get you to retirement, and then once you get there, it converts those investments into an income stream. Sounds like an easy “ride” through retirement, right? Problem is, this oversimplification may cost you, and in more ways than one.

Variables annuities earn returns on your money using stock and bond portfolios built right inside the investment. The rate of returns promised on these funds may be misrepresented and even “guaranteed” somewhere in the realm of 7 or 8%. Meanwhile, the fees and charges associated with the costs of trying to do too many things at once can severely weigh you down and work against your goals for retirement.

This isn’t to say that all annuities are bad. As an investment vehicle, they are very important to people who are retiring without traditional pensions. Annuities can do what no other investment can: they guarantee income. The problem is, it can be very difficult for the average investor to figure out what kind of annuity they need and which benefits and features are worth paying extra for. The biggest reason for the confusion has to do with how annuities are marketed and sold, which is where we come in.

Annuity and Retirement Income Planning Information That You Can Trust

Welcome to Annuity Gator, your online portal to the most comprehensive, unbiased reviews of annuity products today. Our team of experienced financial professionals is dedicated to doing the work of investigating the terms, fees, and costs of annuity investments being sold today and then explaining these complicated investments in a way that makes sense to you.

A lot of people are writing about annuities. A search on the Internet will no doubt turn up hundreds conflicting opinions and advice. Other copycat sites out there might appear to be helping when really, what they are doing is selling. You’ll see and hear claims such as:

  • Highest Payout Rates
  • Lower Fees
  • Top Rated Companies
  • Guaranteed Lifetime Income
  • Free Quotes Available
  • Earn 7-8% Returns With NO Risk to your Principle

Annuity Gator is the place to go if you want to investigate whether or not these claims are true.

It’s common in the financial industry for advisors to sell variable annuities as an investment that can earn higher returns than other investments, but they may not give you the full picture. This missing information might include how those higher returns are calculated, what you pay in terms of fees, and how the risk of this investment can work against the goal of producing a guaranteed income.

Annuities by themselves are not bad investments. There may very well be a need for them as part of your overall retirement plan, but you want to make sure you get what you need in terms of income, protection, and access to your funds. Annuities are long-term investments that can tie up your money for years. This doesn’t mean that the annuity is bad; it means you want to identify why you are buying the annuity and how it will help you best achieve your goals.

Today’s retirement spans a long time, 20 to 30 years or more. That’s a long time to be dealing with issues such as inflation, rising taxes, and health care. You want to choose investments that give you the most of what you need for each dollar you spend. This review is can help you figure out whether or not a particular annuity is a good fit for you.

Ready to jump in? Let’s get started:

AIG – Polaris Choice IV Variable Annuity at a Glance:

Product Name:Polaris Choice IV Variable Annuity
Issuer:American General Life Insurance Company (AGL) except in New York, where they are backed by The United States Life Insurance Company in the City of New York (US Life).
Standard & Poor’s Rating:A+ (Strong)
Phone Number:1-800-445-7862
Website:www-1000.aig.com

Opening Thoughts on the AIG – Polaris Choice IV Variable Annuity

AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. As a life insurance company, they have been keeping promises to their customers since 1926 and continue to issues a broad range of products.

The strength of your annuity is only as strong as the claim’s paying ability of the company who backs it, which is why we always list a company’s ratings. And here’s something to file away in the “good to know” category: AIG gets a strong rating, but it’s not as highly rated as other companies out there because, and we quote from the definition of ratings, “they are somewhat more likely to be affected by adverse business conditions” than insurers with higher ratings.

Generally speaking, variable annuities are also more susceptible to adverse market conditions as compared to other types of investments. To protect your money from market loss, variable annuities offer investors the option to buy pension-like guarantees for a fee of around 1%. This guarantee works very much like the way Social Security works: every year that you don’t touch this money, your account will grow by a certain guaranteed percent. With annuities, this growth is sometimes called a roll-up rate or a step-up. Sounds like a pretty good deal, doesn’t it?

Yes, it’s nice to have the guarantee, but you have to look at how the market risk of this investment works against the goal of guaranteed income.

We will look inside this particular variable annuity to see what the guaranteed roll-up rate is and what it pays out in terms of income, but for now, you want to understand how the insurance company offsets the risk of those market investments.

Think of it this way: the insurance company knows that in spite of all the market volatility, it’s going to be responsible for guaranteeing you a certain amount of growth for your income account. As a result, variable annuities like this one promise lower income payout rates than other annuities on the market because of the risk element inherent in the investment.

What does that mean to you? Before we get into more gritty details, here are some legal disclosures…

This is an independent product review, not a recommendation to buy or sell an annuity. American International Group (AIG) has not endorsed this review in any way nor do we receive any compensation for this review. This review is meant to be an independent review at the request of readers so they could see our perspective when breaking down the positives and negatives of this particular model annuity. Before purchasing any investment product be sure to do your own due diligence and consult a properly licensed professional should you have specific questions as they relate to your individual circumstances. All names, marks, and materials used for this review are the property of their respective owners.

How AIG Describes The Polaris Choice IV Variable Annuity.

AIG describes the benefits and features of this annuity on their website as follows:

  • Combined growth potential, family protection features, and optional retirement income choices.
  • Performance for the growth potential you need
  • Protection and income features for a sense of security
  • Strength for enduring stability

There are other bells and whistles such as the enhanced death benefit option and nursing home option, but these are the highlights. If you want to find the website and/or prospectus, you can click HERE.

How Financial Advisors Might Present This Annuity to You

As demonstrated by the product’s name, the financial industry does a good job of making you, the consumer, feel good about buying their product. Everybody wants performance, protection, and enduring stability in an income-producing investment. The thing to keep in mind, however, is what you need this annuity to do for you now.

Are you more concerned about growing your money, or keeping your money protected? How much income do you need this investment to provide? When do you need this income? These are important questions to answer, because the marketing material for this investment, in particular, may make it sound as though no matter what you need, the Polaris Choice IV can get it for you.

Here are the three main concepts you’ll hear advisors talk about when they explain this variable annuity, followed by an explanation of what that means to the investor.

  • This investment can earn higher returns than other annuities.
  • It will give you guaranteed protection and lifetime income.
  • This income will grow or step-up every year that you wait to access it.

You might also hear the word “hybrid” used to describe this investment because it can do two things: grow your money and provide guarantees for income. Let’s take a look at how well the Polaris Choice performs at each of these goals.

Growing your money: The Polaris Choice IV variable annuity does live up to the promise of “choice” in its branding. It provides investors access to 10 different portfolio options with over 70 different types of funds ranging from high-yield bonds to international equities and small to large-cap stocks. But here’s the catch: not only will be charged a management fee for each fund you choose, you will also be assessed what AIG calls an “annualized separate account charge.”

The separate account charge is a Mortality and Expense Risk Charge (also known as the M&E charges) assessed by the insurance company. Because the insurance company is going to be on the hook for guaranteeing you income, they have to protect themselves. They do this by charging you more fees. But does this investment really earn higher rates of return in exchange for these fees?

If your variable annuity was sold to you with a guaranteed rate of growth or return, that guarantee is coming from the income protection feature, and NOT from the ability of the funds inside the investment.

It is the income protection feature – for which you pay an additional fee – that gives you the guaranteed rate of return. Many investors aren’t told how these income protection features work, and an alarming number of people aren’t even aware that they own them. They just know that they have a guaranteed rate of return.

Providing Guaranteed Income: In order to guarantee your income, the Polaris Choice IV offers packages such as the Polaris Income Plus and Income Builder. For an annual fee, this feature (sometimes known as a rider) will grow your money in a separate account. In the case of the Polaris Choice IV, the rate is a generous 6% guaranteed annually. This means your income base account is guaranteed to grow or step-up each year by 6% until you turn on the income.

Here’s the thing though: this rate of growth doesn’t mean your actual account is earning 6% guaranteed every year. The account earning this return is the account used to pay out your income. If the reason you bought this investment is to get the most amount of income for your money as possible, then you want to look past the rate of return and at income payout percentage.

How much income will you actually get from the Polaris Choice IV? The income amount guaranteed by the purchase of the income protection features ranges from 3% to 5.4% for a single person, and 2.5% to 4.9% for joint-life annually. That means no matter how much your account is earning, your guaranteed income won’t go above that amount.

When you consider that you’re going to be receiving this income for 20 years or more, increasing that payout by just a few percentage points can really make a huge difference. There are better income payouts available today offering higher percentages.

What About the Fees?

Variable annuities are one of the most expensive kinds of annuities that you can own, and the AIG Polaris Choice IV is very upfront about all the fees they charge.

One thing they advertise specifically is a four-year withdrawal schedule which is a much shorter time frame than other annuities out there. If you want to withdraw more than the free withdrawal amount (usually 10% of the account value) or you wish to surrender and get out of the contract, AIG will charge you a percentage of 8%, 7%, 6% , 5% and 0% respectively depending on how long you have owned the contract.

Other charges: There is an annual contract charge of $50, waived for contracts of $75,000 or more. A separate account charge is also assessed by the insurance company each year for 1.65% of the total account value, and this includes a standard death benefit (which means if you pass away, your beneficiaries will receive any money left in your annuity.) After one year, this fee is adjusted quarterly.

On the investment side of things, you will be charged a management fee for each of the portfolio funds you choose inside your variable annuity. The fund fees inside the Polaris Choice IV variable range from .55% to 2.20%. Remember, this fee is per fund series.

All annuities charge a fee for the income protection features, and those charged by the Polaris Choice IV are a bit on the high side. You can guarantee income for life as an individual for 1.10% annually, or for both you and your spouse for 1.35%. These fees can increase or decrease by as much as .25% annually. If you add the family protection feature, this will cost you an additional .25%.

What does all of this mean to you? Here is a breakdown of all the fees:

  • Withdrawal Charge: 0% to .08%
  • Separate Account Charge (M&E risk charge): 1.65%
  • Death Benefit Fee: .25%
  • Income Feature Charge: 1.10% to 2.70%
  • Fund Fees: .55% to 2.20%

Fee Total: 3.55% to 6.88%

The Annuity Gators End-Take on the AIG – Polaris Choice IV Variable Annuity.

Where it works best:

  • For investors who want a simplified approach to retirement planning.
  • For investors who do not have a pension and need guaranteed income.
  • For investors who want to guarantee income for their spouse.
  • For younger investors who have a longer time frame and have no other source of pension-type income.

Where it works WORST:

  • For investors who do NOT need a source of guaranteed income.
  • For investors who need access to their money.
  • For investors who want to protect and preserve their money.
  • For investors who have limited funds.

In Summary

The AIG – Polaris Choice Variable Annuity offers a simplified approach to retirement saving that can also turn out to be an expensive approach when planning your income needs.

In terms of growth, the guaranteed growth rate of 6% on the income base promised by advisors is often misrepresented as the growth rate of the mutual funds inside the investment. The mutual funds inside the investment can lose money, will cost you additional fees, and their growth is not guaranteed.

As an income producing investment, the market risk it’s exposed to makes it difficult for the insurance company to provide a guaranteed income. As a result, the Polaris Choice IV has relatively low-income payout rates as compared to other annuities on the market today.

So what does all this mean to you? If your goal is to get the most amount of income with the dollars you have saved, then you should be aware that this particular annuity could provide you with less income than other annuities that aren’t directly exposed to market risk.

Thanks for bearing with us on this rather long post. If you found it helpful, please spread the word and share it with others.

Lastly, like all humans – we do make mistakes. If you see one on this review please reach out and let us know. We are always more than happy to make corrections and give credit where it is due. If you’re an investor and this review causes confusion and creates questions, feel free to reach out as well. We can’t always get back right away, but we can usually clear up any questions within a day or two.

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