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Ohio National suffering from swollen prospectus

Dear Mr. Berko: My broker wants me to buy a $100,000 Ohio National variable annuity. What do you think of the company?

I do not understand the withdrawal benefits or the cost and reasons for the various riders. Can you explain those to me before I make a decision? And can you tell me about the 1 percent to 2 percent short-term tax-free investments offered by some banks?

I’d also like to invest $100,000 tax-free for nine months to a year if you think this idea is safe. –EP in Kankakee, Ill.

Dear EP: Lots of medium- to small-sized banks home-ported in small cities like Prescott, Ariz., White Fish, Mont., Ozona, Fla., and Plymouth, Ind., make small short-term loans to their municipalities ranging between six months to a couple of years. They charge municipalities between 0.75 percent to 2 percent, and the interest is tax-free.

So, if you are a good friend of the First National Bank of Boonie in Mugwa, Ken., or a board member or a county councilman, you may be able to participate in such loans and earn a sweet tax-free return.

Citigroup, Bank of America, Wells Fargo, etc., make similar loans. However, they and their smaller cousins prefer to keep these transactions close to the vest. But there are a few banks in Kankakee — a Pottawattamie word meaning “wonderful land” — or nearby that might welcome an inquiry with a large deposit.

I think Ohio National Life Insurance Co., headquartered in Cincinnati, is a fine, well-managed insurer with a swell balance sheet and capable managers. Ohio National has more than $100 billion of insurance in force, is A-plus rated from A.M. Best (unchanged since 1991, which is the second-highest rating on a 16-category scale), and both Moody’s plus Standard & Poor’s rank Ohio National as “very strong.”

Founded in 1909, its policy dividends, which 10 years ago were 8.30 percent, have fallen with interest rates to 6.65 percent last year. That’s a heck of a lot better than many other insurers and speaks to the skills of Ohio National’s very keen portfolio management team.

But don’t purchase their variable annuity unless you want to get a hernia carrying its prospectus (1,200 single-spaced pages) from the mailbox to your door.

And, no, I cannot explain Ohio National’s guaranteed lifetime withdrawal benefits riders. Nor can I explain Ohio’s optional benefits charges. I did access the explanations through the Ohio National website, and frankly I felt as if I was reading Franz Kafka written in Sanskrit. So after 20 minutes of glimpsing gibberish written by $1,000-an-hour lawyers, I gave up.

But I did compute the annual charges for your potential $100,000 policy, which includes all sorts of alphabet soup mishmash, such as: GPP (0.55 percent), GLWB (2.40 percent), GEB (0.60 percent), GMBDR80 (0.30 percent), JPP (0.90 percent), plus an MER, (1.15 percent).

These annual charges total 5.85 percent or $5,850 per $100,000, which ain’t chopped liver. Meanwhile, AXA, the MET and others will ding you as much or more, and their prospectuses are as bad or worse.

Sadly, the prospectus is unclear. But tell your salesman to list the gross commission you pay for this product along with the explanation and cost of every rider. Then have him iterate the guaranteed lifetime withdrawal benefits, explain the options, including their costs and how much you or your wife will get at ages 65, 70 or 75.

All of this descriptive explanation should be written on this firm’s stationery. Once this is done, it will be easy for you to make an informed decision.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com

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