ATTORNEY NEWSLETTER
Understand How Complex Deferred Annuities Are
Fixed Indexed Annuities Are Particularly Complex
Avoid Suggestions To Replace Existing Annuities
Sales of any kind of insurance product generate commissions for insurance agents. Deferred annuities generate commissions as high as 10% so they are a favorite insurance product for agents to sell. In particular, insurance agents promote one form of deferred annuities – fixed indexed annuities (FIAs) – as a safe product “guaranteeing” income for the future without the downside risks of market volatility. Evans Law Firm, Inc. advises against these policies for seniors because they are expensive, complex and costly to get out of once you’re in. If an agent suggests the policyholder trade or exchange an existing contract for a new one be especially cautious. While the agent will receive a commission on an exchange, these transactions can result in surrender penalties on the old policy and large, unexpected, tax bills on the surrender. Agents often do not understand the tax implications or if they do, may not explain the tax implications. We represent individuals over 60 who have suffered a loss due to cancellation, replacement, full or partial surrender, or high fees connected with a deferred annuity or other unsuitable insurance product here in San Francisco or throughout California. Call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy.
Sales Commissions, Contract Fees and Surrender Charges
An upfront sales commission of any percentage comes right out of your investment in any annuity. When selling you that contract, the agent may try and convince you that a “premium bonus” under the contract will reimburse you for that expense but don’t buy that promise. Premium bonuses are gimmicks and you may never withdraw or receive the “bonus” back. FIAs also carry various fees including administrative fees, mortality and expense fees, rider fees for policy enhancements (like death benefits and income riders), and subaccount fees charged against your return. Together, these fees can run as high as 2-3% and will erode or wipe out any return you may expect on your money. But the surrender charges imposed whenever you withdraw your money are the greatest pitfall in these contracts. Surrender fees are often as high as 15% and can apply for periods up to ten years or more. If you want to move your money to another investment or need it for an emergency, the surrender charge will reduce the amount you receive.
Return Calculations
The returns on your money in FIAs are calculated by methods that do not benefit you. First, policy returns are capped at a percentage which will be less than the fund’s real return in any given year. Second, dividends on the stocks in the fund are not reinvested as with a direct investment in the fund. Third, any gains you receive are limited by the policy’s “participation rate.” For example, if you have a participation rate of 80%, your investments will only grow by 80% of the amount that the index fund grew. Direct mutual fund investments do not carry these caps and limitations, and if you make your mutual fund investment through an IRA or other tax-deferred vehicle, you will also reap the benefits of tax deferral. Annuity investments on the other hand, always have tax consequences so never buy or surrender or replace an existing annuity without first consulting your tax advisor.
Replacements or Exchanges Are Costly
Under California law, insurance agents are not permitted to recommend an exchange of an existing annuity for a new one if the transaction “requires the insured to pay a surrender charge for the annuity that is being replaced, where purchase of the annuity does not confer a substantial financial benefit over the life of the policy to the consumer, so that a reasonable person would believe the purchase is unnecessary.” Cal. Ins. Code § 10509.914(c)(emphasis added). Despite the prohibition, agents recommend exchanges that do not necessarily generate that “substantial financial benefit” to the policyholder. We have represented senior consumers in many cases where an agent has talked a senior into an exchange or replacement of an existing contract and the senior has suffered serious economic injury as a result of surrender charges on the existing policy and heavy tax liability for the surrender. Never agree to any exchange, replacement or surrender of an annuity without consulting your tax advisor and getting a second opinion from an investment professional with nothing to gain from the exchange.
Contact Us
If you are over age 60 and have lost money as the result of a deferred annuity transaction or surrender call Ingrid M. Evans at (415) 441-8669 (or toll free at 1-888-50EVANS) or by email at <ahref=”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.
