ATTORNEY NEWSLETTER
Understanding Annuities
Tying Up Savings and Hidden Costs
Annuities are insurance contracts sold to provide guaranteed income for life. Deferred annuities defer that income (and possibly taxes) until a future date. Insurance agents and advisors promote annuities as retirement savings vehicles. We at Evans Law Firm do not give investment or tax advice, but we have years of experience with annuities and financial elder abuse and caution you to consider all the facts before you purchase an annuity. There are significant downsides with these complicated investments especially for seniors and agents and advisors often prey on seniors in marketing these products as new investments or replacements for existing ones. If you or a loved one has suffered a loss from an unsuitable annuity, replacement of an existing annuity, or other form of financial elder abuse in San Mateo County or elsewhere in California, call the Evans Law Firm at (415)441-8669 and we can help. Below we list several important considerations when deciding on an annuity purchase or replacement.
- Annuities can be expensive in terms of the benefits they provide. Here are just some of the costs:
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- Annual contract fee: Either fixed dollar amount or an expense ratio.
- Investment management fees. In variable annuities your money will be held in mutual fund subaccounts. These subaccounts charge fees too, not always disclosed.
- Optional rider fees. These can be as high as 3%, significantly eroding any return.
- Commissions. Commissions are paid out upfront and always high in life insurance and annuities. It takes a long time – and a healthy return – to recoup that upfront money.
- Withdrawal or surrender charges. Surrender charges can be as high as 14% and last for up to ten years or more.
- You already own an income annuity – it’s called Social Security.
- Reduced liquidity. Deferred annuities will tie up your money for years and any withdrawals for emergencies or other needs will be subject to large surrender penalties. Locking your money up for a long time will take away flexibility and it’s important to think through what your true needs are.
- When you start drawing the income payments earnings are taxed as ordinary income.
- Lack of transparency – annuities are very complex insurance products and important terms are often buried in lengthy riders or endorsements to policies.
- Be especially careful about replacing an existing annuity. Agents often push replacements. This practice is known as “churning” and should be avoided. Replacements often mean steep surrender charges and immediate tax liabilities.
Seniors face the biggest potential harm. With any deferred annuity, your money is tied up for a long time and any early withdrawal is subject to hefty surrender charges. This is especially dangerous for seniors who may need their money before their policy matures. Also, agents will entice seniors to replace an existing annuity with a new one. As we mentioned above, this “churning” is extremely dangerous for seniors. You may incur steep surrender charges on your existing contract and incur an unexpected tax liability. While we at Evans Law Firm do not provide tax advice, we have seen policyholders hit with big tax bills on replacements. Always seek the advice of an advisor who does not stand to gain from any purchase and always consult your tax advisor. There may be significant tax consequences for replacements, rollovers, purchases, and withdrawals.
Some of the major annuity and life insurance providers in California are:
AXA Equitable Life Insurance
Bankers Life Insurance and Casualty company
EquiTrust Life Insurance Company
Fidelity & Guaranty Life Insurance Company
Genworth Life Insurance Company
ING USA Annuity and Life Insurance Company
John Hancock Life Insurance Company
Lincoln Benefit Life Company
Massachusetts Mutual Life Insurance Company
Metlife/Metropolitan Life Insurance Company
Pacific Life Insurance Company
Transamerica Life Insurance Company
Unum Life Insurance Company of America
Voya/Reliastar Life Insurance Company
Contact Us
If you or a loved one has suffered loss on an unsuitable annuity, annuity replacement, or paid surrender charges on a deferred annuity or any other annuity or has been the victim of financial elder abuse in San Mateo County or any California county, contact the Evans Law Firm annuity attorneys at (415) 441-8669, or by email at <a href=”mailto:info@evanslaw.com”>info@evanslaw.com</a>. Our attorneys have experience with complex financial contracts and large insurance companies. We can help guide your case through a FINRA arbitration, jury trial or toward an equitable settlement. We handle cases involving physical and financial elder abuse, qui tam and whistleblower law, nursing home abuse, whole life insurance and universal life insurance, and indexed, variable, and fixed annuities.
