ATTORNEY NEWSLETTER
Deferred Annuities Pose Problems For Seniors
Penalties For Exiting From Policies
Fees And Potential Tax Liabilities
Whenever an insurance agent or financial advisor of any kind suggests an indexed annuity for you, be wary, especially if you are retired or nearing retirement. Indexed annuities, like most deferred annuities, impose penalties, known as surrender charges, if you need your money before the annuitization phase kicks in; surrender charges can be as high as 10% or more and last for up to ten or more years into a contract. Evans Law Firm, Inc. generally recommends against deferred annuities for older consumers because they are expensive and complicated and because these contracts tie up a senior’s money for years. Sales tactics for these policies may be aggressive and agents may try to rush a senior into a transaction or fail to provide all the information necessary to understand how a policy works. While we do not provide tax advice at Evans Law Firm, we recommend that you always consult your tax advisor before any purchase of, or withdrawal from, a deferred annuity. Unsuitable policies and deceptive or aggressive sales tactics may also violate legal protections for older consumers in particular. Cal. Weld. & Inst. Code § 15610.30 (definition of financial elder abuse); Cal. Ins. § 790 et seq. (Unfair Insurance Practices Act). Senior victims may sue for damages and other relief including awards of attorneys’ fees and expenses for bringing your case. Cal. Welf. & Inst. Code § 15657.5. If you are over 60, live in Healdsburg or elsewhere in Sonoma County and own a deferred annuity, call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy.
Surrender Penalties, Fees, Participation Rates And Caps
There are a number of features that bear scrutiny with these complicated insurance contracts. Three features of particular concern for senior policyholders are:
- Surrender Penalties. A surrender charge is a fee assessed on investors assets if they move money out of a deferred annuity. The surrender charges are often 5 to 7 percent of assets in year one and decline one percent a year until they go away over the next 5 to 7 years. If an older person needs their money for an emergency or because their living and care expenses have increased beyond what they expected, will be penalized by an early surrender of their contract. Direct mutual fund investments do not penalize withdrawals.
- 2. Commissions And Deferred annuities are expensive. First, a selling agent receives a significant commission on the sale of the contract to you which can be around 8%. That comes straight out of your premium. Yearly expenses can be high too. Conversely, annuity fees can run in the range of 2.5 percent to 3 percent a year (versus 1-1.2% average on mutual funds). If an agent sells you additional policy features, known as “riders,” you will pay more for those too, and your return may be eroded by another 1-2% or more annually.
- Participation Rates And Caps On Performance. Carriers will typically impose a “participation rate” set below 100% so if the index you chose increases you will not get a 100% of that return, but a lower percentage. Annuity providers also determine a “cap rate,” an interest rate that limits the growth of an indexed annuity. This cap ensures that the annuity provider can meet their obligations and still make a profit on the product.
- Tax Liabilities. Although we do not provide tax advice at Evans Law Firm, we do know there are always tax consequences for purchases and withdrawals from annuities. Withdrawals may be taxed at ordinary income tax rates which are higher than capital gains rates. And there may be other tax issues you need to explore with your tax advisor. Always consult your tax advisor before making any transactions in annuities.
Contact Us
If you are over 60 and live in Healdsburg or elsewhere in Sonoma County and have a deferred annuity or universal life insurance contract, we can review your contract for free. You can reach Ingrid M. Evans at Evans Law Firm, Inc. at (415) 441-8669, or toll free at 1-888-50EVANS or by email at <a href=”mailto:info@evanslaw.com”>info@evanslaw.com</a>.
Some significant issuers and distributors of fixed, variable and fixed indexed deferred annuities in California are listed below. We are not in any way suggesting that any of these carriers or distributors has done anything wrong. The list is provided solely as a reference for our readers.
AIG/American General Life Insurance Company
Allianz Life Insurance Company of North America
American Equity Investment Life Insurance Company
American General Life Insurance Company/AIG
American International Group, Inc. (AIG)
American National Life Insurance Company
Athene Annuity & Life Assurance Company
Athene Annuity and Life Company
Athene USA
Aviva Life Insurance Company
AXA Equitable Financial Services, LLC
AXA Equitable Life Insurance Company/AXA US
AXA Advisors, LLC
Brighthouse Financial, Inc./MetLife
EquiTrust Life Insurance Company
Fidelity & Guaranty Life Insurance Company
Genworth Financial, Inc.
Genworth Life and Annuity Insurance Company
Genworth Life Insurance Company
Guggenheim Partners, LLC
Guggenheim Partners/Security Benefit Life Insurance Company
ING USA Annuity and Life Insurance Company
Jackson National Life Insurance Company
John Hancock Life Insurance Company
Lincoln Benefit Life Company
Lincoln Financial Group
Massachusetts Mutual Life Insurance Company
Metlife/Metropolitan Life Insurance Company/Brighthouse Financial, Inc.
Minnesota Life Insurance Company
Nationwide Investor Services Corporation (NISC)
Nationwide Life and Annuity Insurance Company
Nationwide Life Insurance Company
New York Life Insurance Company
Northwestern Mutual Investment Services, LLC
Northwestern Mutual Life Insurance Company
Northwestern Mutual Wealth Management Company
Pacific Life & Annuity Company
Pacific Life Insurance Company
PacLife
Security Benefit Corporation
Security Benefit Group, Inc.
Security Benefit Life Insurance Company/Guggenheim Partners
Security Investors, LLC
Security of Denver Life Insurance Company/Voya
Transamerica Life Insurance Company
Voya Financial Advisors
Voya/Reliastar Life Insurance Company
World Financial Group Insurance Agency, Inc.
