The guy that’s about to make a fat commission from selling you a variable annuity probably won’t tell you about the often overlooked pitfalls of this complex financial product.

A variable annuity is effectively a mutual-fund account wrapped inside  an insurance policy.  It consists of three parts: (1) a general account, (2) subaccounts, and (3) a death benefit.

Larry Swedroe elegantly summarizes the disadvantages of variable annuities in his book “Investment Mistakes Even Smart Investors Make and How to Avoid Them.”:

1. the high cost of the insurance
2. the high operating costs of the investment accounts
3. the lack of passive low-cost investment choices
4. the conversion of preferentially taxes capital gains into highly tax ordinary income

Think carefully before buying a variable annuity.  If you feel you truly need this product, look for one with lower cost structures and better investment choices such as those offered by AEGON, Schwab, TIAA-CREF and Vanguard.