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Understanding Income Riders

Income Riders Flood Annuities Market

A flood of new income riders on annuities partially explains a recent boom in sales. Annuity sales hit a record $203 billion last year. Before you climb abroad this fast-moving train, make sure you understand what annuities are, what income riders are, and whether the combination really fits your retirement plan. Always bear in mind two hard and fast rules: (1) things which sound too good to be true usually are and (2) annuities, like any kind of insurance, produce a very substantial upfront commission for the salesperson. Even with a decent return, it will take a long time to recoup that expense. We at Evans Law Firm have years of experience with annuities and life insurance and see every day how these products often disappoint if not turn into outright financial disasters for older people. If you or a loved one has been the victim of annuity fraud or have lost money due to income riders, surrender charges or other fees associated with an unsuitable annuity, call the experienced financial elder abuse and annuities lawyers today at Evans Law Firm, Inc. (415) 441-8669 and we may be able to help. We represent clients in the State of California.

What are Income Riders?

Income Riders are attachments to deferred annuities that create a separately calculated fund apart from the accumulated value part of an annuity. The accumulated value begins as the amount of premiums paid and grows at a fixed rate on fixed accounts or a variable rate on variable annuities. The income rider is a separate fund, the principal of which is never available for withdrawal. Instead, the rider offers a “guaranteed” income for life payable only on a schedule determined by the carrier. The sales pitch is that a higher guaranteed income will be available to the policyholder beginning at a future date and continuing for life. An agent, for example, may try to sell you on an 6-7% income guarantee rider for a contract where the contract rate is only 2%. How can that be? Well, the answer is it really can’t be as you find out when you get into the details.

First, there’s a whopping 1% annual fee for the rider which on a 2% contract return already cuts your return on investment in half, from day one (in addition to the effect of the commission you paid out in year one). The fee also diminishes the purported “guaranteed” return under the income rider. Second, there are several very serious catches to how the rider works:
• You cannot peel off interest from an income rider like you can a CD or bond. Once you begin your income draw downs, the income will always be paid to you in “scheduled” amounts, determined by actuarial tables.
• Any complete surrender will never include the phantom amount of the income rider “fund.” Instead, you will pay a steep surrender charge.
• Any partial surrender of accumulated value will reduce the base on which the income rider “growth” is calculated. You will also pay a steep surrender charge on any partial surrender.
• You cannot access the income rider calculation as a lump sum … ever! It will always be paid to you in the form of scheduled payments.
• You cannot transfer the income rider total to another annuity.
• Once you start taking income, the annual growth percentage stops.
• You can only use the high percentage income rider amount for income (or confinement care in select policies).
• The scheduled income amounts will be taxable to you as ordinary income.

Annuities are extremely complex and not for everybody. Promises of high returns in a low interest rate world really are too good to be true. Fees and commissions destroy returns. Annuities tie up your money for years and withdrawals for emergencies may incur very steep surrender penalties. We understand all these drawbacks because we see these kinds of cases every day. Never be afraid to ask for a third-party opinion. Here at Evans Law Firm, we are able to review your annuity at no cost if you believe that you or a loved one were victims of annuity fraud or suffered a financial loss as a result of an unsuitable annuity. We represent clients in the State of California.

Some of the major annuity and life insurance providers in California are:

• Transamerica Life Insurance Company
• John Hancock Life Insurance Company
• Bankers Life Insurance and Casualty company
• Massachusetts Mutual Life Insurance Company
• Pacific Life Insurance Company
• Genworth Life Insurance Company
• ING USA Annuity and Life Insurance Company
• Lincoln Benefit Life Company
• Metlife/Metropolitan Life Insurance Company
• Unum Life Insurance Company of America
• Voya/Reliastar Life Insurance Company
• Fidelity & Guaranty Life Insurance Company
• Lincoln Benefit Life Company
• AXA Equitable Life Insurance

Contact Us

If you or a loved one been the victim of annuity fraud in Contra Costa County or any California county, contact the Evans Law Firm financial elder abuse and annuity fraud attorneys at (415) 441-8669, or by email at info@evanslaw.com. 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.