ATTORNEY NEWSLETTER
Be Wary of Anti-Volatility Gimmicks
On Monday, February 5, the Dow Jones Industrial Average fell by more than 1,179 points, the biggest daily point loss in its history. Although the market recovered, many investors, including seniors and those nearing retirement, understandably have the jitters. In a volatile market, insurance agents rush to sell indexed annuities which, they claim, hedge against market volatility. We are not convinced. The financial elder abuse and annuity attorneys at Evans Law Firm, Inc. represent consumers in Santa Clara County and throughout California who have lost money when an agent or advisor convinces someone to purchase an unsuitable product like an indexed annuity or replace an existing annuity with a new, “safer” one.[1] If you or a loved one is over age 60 and lives in California and lost money due to an annuity surrender or replacement or by paying heavy fees and surrender charges under an annuity or income rider, call the Santa Clara County and California financial elder abuse and securities lawyers at Evans Law Firm, Inc. (415) 441-8669 and we may be able to help.
One of the annuity products out there today has a tantalizing name: the volatility-controlled index, sometimes called a managed volatility indexed annuity. Whatever the name, these products are variations of fixed indexed annuities, a hybrid of fixed annuities (with a fixed return) and variable annuities (where the returns fluctuate in accordance with market fluctuations). One especially tempting feature is when the agent describes that the return on the indexed portion is “uncapped.” That is, the sky’s the limit! Don’t rise to the bait without looking closer.
Factors to Consider
Sellers claim fixed indexed annuities combine the security of a fixed return with the upside of rising stock prices. In volatile markets, indexed annuities tend to outsell variable annuities. In each year of a fixed indexed product, the contract return is the greater of an annual minimum rate, or the return of the chosen stock market index, reduced by expenses and formulas buried in the contract. If the chosen index rises sufficiently during a specified period, a greater return is credited to the owner’s account for that period. If the stock market index does not rise sufficiently, or even declines, the lower minimum rate is credited (usually 0% – 2%). The owner is in theory guaranteed to receive back at least all principal less withdrawals, provided that the owner has held the contract for the minimum period of time specified in the contract and makes no withdrawals.
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There’s the rub. With any annuity, including these fixed indexed annuity, your money will be tied up for a long time, often 10 years or more, resetting on any new money added. Early withdrawals will be subject to surrender charges up to 15% (!) and forfeiture of the “extra” return your account was purportedly earning over the guaranteed (fixed) rate. Even if you hold out to the end and refrain from early withdrawals, the fees and expenses in these accounts, together with the upfront sales commission, may erode your return significantly if not wipe it out. Bottom line is, beware. Fixed index annuities are extremely complicated, and this is just a brief overview. Always consult a qualified professional who does not stand to gain from any purchase and always consult your tax advisor before making any purchase or considering a replacement. Surrenders and replacements may have severe tax consequences.
Annuities are a complex hybrid of investment and insurance instruments and may be structured as fixed annuities, variable annuities or products such as fixed indexed annuities which are a combination of fixed and variable policies. Agents may try and convince you that you need a deferred annuity to accumulate money tax-deferred for the future. Be wary. You already have a deferred annuity in the form of Social Security and perhaps a pension plan from your job; you can also accumulate tax-deferred retirement savings in an IRA or 401(k) savings plan. With a deferred annuity your money will be tied up for a long time and any withdrawal prior to maturity may be subject to a surrender penalty.
Consider the following factors when deciding on an annuity recommendation, including a fixed indexed product:
- Know what kind of annuity is being recommended. Is it deferred, fixed, variable, etc.?
- How long will your money be tied up? Deferred annuities can run as long as 15 years. Surrender penalties on early withdrawals may cancel out any earnings.
- How much is the surrender penalty? Penalties may run as high as 15% in early years. Investing in a deferred annuity may make no sense at all if you need access to your money.
- Don’t take out a reverse mortgage to purchase an annuity. California law prohibits such cross-selling but it still occurs.
- Don’t purchase an annuity based on the representation that it will protect your assets under California Medi-Cal eligibility rules.
- Beware of scare tactics. Some annuity salespersons are trained to exploit a senior’s fear of running out of money.
- Always get a second opinion and always consult your tax advisor.
Contact Us
If you or a loved one is over age 60, lives in California, and has suffered economic loss as a result of an unsuitable investment, lost money on an annuity or life insurance surrender or replacement or been the victim of financial elder abuse in Santa Clara County or elsewhere in California, contact California securities and financial elder abuse attorney Ingrid Evans and the other Evans Law Firm, Inc. financial elder abuse and securities 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.
Some of the leading providers of annuities and life insurance in California are listed below. We do not suggest in any way that these carriers have issued unsuitable contracts or done anything wrong. Rather, the list is provided solely for our readers’ reference.
Allianz Life Insurance Company of North America
Allstate Life Insurance Company
American Equity Investment Life Holding Company
American General Life Insurance Company
American National Insurance Company
Ameriprise Financial/RiverSource Life Insurance Company
Athene Annuity and Life Company
AXA Equitable Life Insurance Company
Bankers Life Insurance and Casualty Company
EquiTrust Life Insurance Company
Fidelity & Guaranty Life Insurance Company
Guggenheim Partners/First Security Benefit Life Insurance Company
Global Atlantic/Forethought Life Insurance Company
Genworth Life Insurance Company
Guardian Life Insurance Company
ING USA Annuity and Life Insurance Company
Jackson National Life Insurance Company
John Hancock Life Insurance Company
Life Insurance of the SouthWest/National Life Group
Lincoln Financial Group/The Lincoln National Life Insurance Company
MassMutual/Massachusetts Life Insurance Company
MetLife/Metropolitan Life Insurance Company
Midland National Life Insurance Company
Mutual of Omaha/United of Omaha Life Insurance Company
National Life Group/Life Insurance of the SouthWest
New York Life Insurance Company
Pacific Life Insurance Company
Principal Life Insurance Company
Pruco/Prudential Life Insurance Company
RiverSource Life Insurance Company/Ameriprise Financial
Security Benefit Life Insurance Company/Guggenheim Partners
Symetra Life Insurance Company
Transamerica Life Insurance Company
United of Omaha Life Insurance Company/Mutual of Omaha
Unum Life Insurance Company of America
Voya/Reliastar Life Insurance Company
[1] We do not, however, provide investment or tax advice.
