Independent Review of the AIG – Polaris Platinum III Variable Annuity

What’s covered in this Review?

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

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

In this day and age fewer and fewer employers are offering pensions, so the challenge of building and structuring retirement income has gotten rather daunting. The Polaris Platinum III comes to the rescue with an easy way to invest in the stock market for a relatively small sum of money, while also offering the promise of guaranteed income later. The only problem is, getting both of these perks inside a single investment gets expensive.

Variables annuities earn their returns by participating in the market, but because they are issued by insurance companies, investors pay fees twice: once for the privilege of investing in the mutual funds, and then again for the income protection. If you don’t need income protection for another 20 or 30 years, then why would you pay for this feature now? Sadly, many investors who are sold variable annuities aren’t even aware of what they are buying. Perhaps this may be you?

If your goal is to grow your money, you might be dazzled by the promise of guaranteed returns somewhere in the realm of 7 to 8% or even higher. Are these claims true?

If your goal is to protect what you have already built up, then you might hear about the Polaris Platinum’s ability to guarantee you income for life, but how much income will you get, and is your money really guaranteed?

If you want answers to these and other questions, you’ve come to the right place. Annuities are long-term investment vehicles designed for retirement, and they can be very expensive to own and get out of. Early withdrawals may be subject to charges as high as 8% of the investment, plus income tax and Federal taxes, especially if withdrawn before the age of 59½.

Bottom line: you want to be certain before you invest.

Enter: Annuity Gator.

Annuity and Retirement Income Planning Information That You Can Trust

If this is your first time visiting us, we’d like to personally welcome you to the most comprehensive and unbiased database out there reviewing annuities today. The independent financial professionals that comprise Annuity Gator strive to produce the most accurate, independent annuity reviews available on the World Wide Web today, and we have been doing so longer than other similar

websites out there. There are plenty of places you can go to find somebody who will sell you an annuity; there aren’t a lot of places where you can go to learn about them. Our goal is to educate you about these investments so you can decide for yourself whether or not a particular annuity is what you need to meet your goals for retirement.

This review will explain what you see in brochures, read in advertisements, and hear from salespersons and companies who make what may turn out to be hyped-up claims when trying to convince you their annuity can give you all of the following:

  • Highest Payouts!
  • Lowest Fees!
  • Top Rated Company!
  • Guaranteed Income for the Rest of Your Life!
  • 7 -8% Returns with NO Risk to Your Principal!

Sound too good to be true? It’s not that these statements are all lies, but rather it’s that they aren’t fully explained. For example, variable annuities rarely earn the high percentages of 7 or 8% returns promised to investors, and the funds themselves certainly don’t do so on a guaranteed basis. In order to get the guarantees, you have to purchase additional features, which in this particular case are called Income Protection Features. It’s sad but true that we’ve seen cases where the investor didn’t even know they were paying for this feature because it was sold to them as a guaranteed rate of return.

You only get one shot at saving and planning for retirement. This is the place to go if you want to understand how annuity investments work and what they can really give you dollar-for-dollar in terms of growth and income protection.

Now let’s dig in:

AIG – Polaris Platinum III Variable Annuity at a Glance:

Product Name:Polaris Platinum III 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 Platinum III Variable Annuity

AIG is the marketing name for the worldwide 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 offer consumers a broad and comprehensive range of products.

The two main variable annuities offered by AIG are the Polaris Choice IV and the Platinum III. Overall, the biggest difference between the two is how the investment side of things is structured.

The Polaris Platinum III is sold at a “total retirement package” geared to someone not yet in retirement but in the working and saving years of their life. The Platinum III offers a much lower minimum initial investment requirement (as compared to the Choice IV) that starts at $4,000 for qualified money and $10,000 for non-qualified money.

Next, they offer professional money management and dollar cost averaging accounts, with as many as 15 transfers between variable portfolios allowed per contract year. This means you can rebalance the different types of risk you are exposed to within your portfolio as you get closer to the time of retirement. Notice, however, that we specified “different types of risk.”

Variable annuities are dependent on the performance of the stock market. No matter how the funds within the annuity are allocated, they are still correlated to the market, which means you can still lose money in this investment. But wait a minute – what about the guaranteed 8% returns promised by the salesperson who sold (or is trying to sell) this annuity? Good question.

Variable annuities are often pitched as “hybrid” investments because they can do two things: invest your money and structure it for income. If you get nothing else from this review, understand this: these two goals are not compatible with each other.

The best way to understand what this means is to think of it from the issuing company’s point of view, so here is a little example: If you put $100,000 in their variable annuity, how much will it be worth in 10 years’ time? Nobody knows. The market has become increasingly unpredictable. Your annuity could be worth $140,000 or it could be worth $70,000 if it suffers a loss. Either way, the issuing company must pay you a guaranteed income from an account that is going up and down in value.

To protect themselves, they will offer you a smaller income payout than what other safer, non-variable investments can provide. We will go into more detail about the income side of things and how these guarantees are often confused as the rate of return on the investment, but first, we are required to go through 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 Platinum III 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 including ways to customize your annuity
  • 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

The appeal of retirement planning made simple is easy to understand. Every investor wants performance, protection, and enduring stability from an income-producing investment, but you want to be wary of any advisor who promises that one single investment is the answer to all your problems.

If you are worried about running out of money, saving enough money, and getting an income once retired, then the Polaris Platinum III might be sold to you as an investment that can do the following:

  • Earn higher returns with customizable options available.
  • Give you a guaranteed rate of return and lifetime income.
  • Growth that can step-up every year that you wait to access your money.

These promises can make it sound like the ideal investment, but let’s take a look at the fine print:

Growing your money: The Polaris Platinum III offers access to several different investments with over 70 different types of funds inside each series, ranging from high-yield bonds to international equities and small to large-cap stocks. This allows you to grow your money tax-deferred through dollar cost averaging, which you can do inside any IRA or 401(k) invested in mutual funds.

These funds, however, are “managed,” which means you will be charged a management fee that averages for 0.72% to 1.48% for each series you elect within your variable annuity. You will also be charged a base fee from the insurance company of 1.30% annually. But how do these funds perform?

I’ve heard from potential buyers that this annuity is sold as being able to earn a minimum return of 6% per year, with the possibility of earning 10% or more if the market really goes up. Is any of this true?

Well, not exactly.

If your agent or advisor explains this annuity correctly, you should never get the impression that you’ll earn more than 2% to 5% from the mutual funds inside the annuity. If bigger returns than that were part of the sales pitch, or if a guaranteed rate of return was promised, what they were talking about was the return and guarantee promised by what AIG calls the income protection feature.

It is the income protection feature – for which you pay an additional fee – that gives you the guaranteed rate of return, which in this case is a nice 6%. So what’s wrong with that? If income is what you need, this can be a nice feature to have as long as you understand the costs and realize that you can’t access this money as a lump sum withdrawal.

Providing Guaranteed Income: In order to guarantee your income, the Polaris Platinum III allows you to choose between one of two income protection features: the Polaris Income Plus or the Income Builder. The minimum fee for this feature is .60% a year, and the maximum annual fee for the life of the contract is 2.20% for a single Life or 2.70% for joint life (both you and your spouse.)

By paying this fee, your money will grow or step-up in a separate account. In the case of the Polaris Platinum III, the rate is a generous 6% guaranteed annually. This “locks in” the greater of your investment gains or an annual income credit of up to 6% on each contract anniversary date during the first 12 years you own the investment while you wait to take your income.

Can you access the money growing at this special rate as a lump sum withdrawal? No. You can only take this money out as income.

If you plan never to touch this money, then having a promised 6% growth rate can be a nice thing but understand that in the meantime, you will still be paying a lot of fees to manage the risk and mutual funds inside this investment. There are other annuities out there that can also guarantee a step-up rate of 6% and even higher. Furthermore, other annuities NOT exposed to the stock market can also promise higher income payout rates.

If the reason you bought this investment is to get the most amount of income for your money as possible, then you want to ask your advisor, how much income will I actually get?

The income payments guaranteed by the income protection features of the Polaris Platinum III ranges from 3% to 5% for single and joint life annually. That means no matter how much your account is growing, you will never be able to get more than that income amount.

Variable annuities like this one provide lower income payout rates than other annuities on the market because of the risk element inherent in the investment. Remember, the insurance company is on the hook for paying you a guaranteed income from a fluctuating investment, and so they protect themselves. One way they do that is by charging you . . .

What About the Fees?

The AIG Polaris Platinum III is upfront about the fees they charge, but because they are spread out all over the prospectus, it might be hard to add them all up in your head. We’ve done that for you here.

What follows is a breakdown of all the fees:

  • Separate Account Charge (M&E risk charge and Death Benefit): 1.30% to 1.55%
  • Early Access Rider: .40% additional fee for first 4 contract years
  • Family Protection Feature: .25%
  • Income Feature Charge: 1.10% to 2.70%
  • Fund Fees: .55% to 2.20%

Fee Total: 3.55% to 6.88%

These fees are charged to your account annually, which makes the variable annuity one of the most expensive investments you can own.

Another thing to be aware of is that this can be an expensive investment to get out of. Annuities, unlike mutual funds, are NOT liquid investments, meaning it can be hard to get to your money. That’s what all the surrender charges and early access options are about.

If you roll $100,000 into this annuity, for example, and then you need the money for a down payment on a new condo, you’re going to be charged a fee to access more than your free withdrawal amount (which is usually 10% after the first year.) What might that look like?

Imagine that you make a $100,000 purchase in year one. Then in year two, you take out your free withdrawal amount of 10% or $10,000. Your contract value falls to $90,000. Now imagine the stock market takes a hit and your balance falls to $50,000. Should you decide in year 3 that you want to get out of the investment, they will charge you a 6% withdrawal fee on the full purchase price of $100,000, which means you will get back $44,000 on your $100,000 investment.

A separate withdrawal charge schedule also applies to each purchase payment. A Purchase Payment is anytime you put money into the contract. After a purchase payment has been in the contract for 8 complete years, they no longer charge you to access your money.

A separate withdrawal charge schedule also applies to each purchase payment. A Purchase Payment is anytime you put money into the contract. After a purchase payment has been in the contract for 8 complete years, they no longer charge you to access your money.

The Annuity Gators End-Take on the AIG – Polaris Platinum III Variable Annuity.

Where it works best:

  • For investors who need a simple approach to retirement planning.
  • For younger investors who have a smaller amount of capital to start with and no other options for tax-deferred investment vehicles.
  • For investors who do not have a pension and need guaranteed income.
  • or investors who want to guarantee income for their spouse.

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 do NOT want to lose any money and have a low tolerance for risk.
  • For investors who have limited funds and are not participating in their company’s 401(k) or other retirement plan investment options.

In Summary

The AIG Polaris Platinum III Variable Annuity is offered to investors as a total retirement package so you can grow money in the stock market and have guaranteed income all from one investment. This overly simplified approach makes it an expensive investment to own.

In terms of growth, the guaranteed rate of 6% on the income protection features is often confused or combined with the growth rate of the mutual funds inside the investment. The mutual funds inside this variable annuity can lose money and their growth is not guaranteed. Furthermore, because you are getting hit by fees from the investment side and the insurance side, this is an investment running with weights around its ankles.

As an income producing investment, the market risk this annuity is exposed to makes it difficult for the insurance company to meet its obligations. To compensate, they pass the cost on to you. The Polaris Platinum III has relatively low-income payout rates as compared to other annuities available today.

So what does all this mean to you? If you are young and your goal is to save money for retirement, there are other, less expensive ways to do so. If you want to get the most amount of income with the dollars you have already saved, then protecting that money should be your priority. By preserving the money first, you’ll be able to get a higher guaranteed income payout than you will with a variable annuity that is 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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