Example:  You currently hold a variable annuity with an account value of $20,000, which is no longer subject to surrender charges. You exchange that annuity for a new variable annuity, which pays a 4% bonus credit and has a surrender charge period of eight years, with surrender charges beginning at 9% of purchase payments in the first year. Your account value in this new variable annuity is now $20,800. During the first year you hold the new annuity, you decide to withdraw all of your account value because of an emergency situation. Assuming that your account value has not increased or decreased because of investment performance, you will receive $20,800 minus 9% of your $20,000 purchase payment, or $19,000. This is $1,000 less than you would have received if you had stayed in the original variable annuity, where you were no longer subject to surrender charges. 

In short:   Take a hard look at bonus credits. In some cases, the "bonus" may not be in your best interest.  

Ask Questions Before You Invest   

Financial professionals who sell variable annuities have a duty to advise you as to whether the product they are trying to sell is suitable to your particular investment needs. Don't be afraid to ask them questions. And write down their answers, so there won't be any confusion later as to what was said.  

Variable annuity contracts typically have a "free look" period of ten or more days, during which you can terminate the contract without paying any surrender charges and get back your purchase payments (which may be adjusted to reflect charges and the performance of your investment). You can continue to ask questions in this period to make sure you understand your variable annuity before the "free look" period ends.  

Before you decide to buy a variable annuity, consider the following questions: 

• Will you use the variable annuity primarily to save for retirement or a similar long-term goal?  
• Are you investing in the variable annuity through a retirement plan or IRA (which would mean that you are not receiving any additional tax-deferral benefit from the variable annuity)?  
• Are you willing to take the risk that your account value may decrease if the underlying mutual fund investment options perform badly?  
• Do you understand the features of the variable annuity?  
• Do you understand all of the fees and expenses that the variable annuity charges?  
• Do you intend to remain in the variable annuity long enough to avoid paying any surrender charges if you have to withdraw money?  
• If a variable annuity offers a bonus credit, will the bonus outweigh any higher fees and charges that the product may charge?  
• Are there features of the variable annuity, such as long-term care insurance, that you could purchase more cheaply separately?  
• Have you consulted with a tax adviser and considered all the tax consequences of purchasing an annuity, including the effect of annuity payments on your tax status in retirement?  
• If you are exchanging one annuity for another one, do the benefits of the exchange outweigh the costs, such as any surrender charges you will have to pay if you withdraw your money before the end of the surrender charge period for the new annuity?  

Remember:   Before purchasing a variable annuity, you owe it to yourself to learn as much as possible about how they work, the benefits they provide, and the charges you will pay.