The History of the indexed annuity
To understand the growing popularity of the indexed annuity, it is essential to understand how the product developed, what it was intended to do, and what it is being used for today. Indexed annuities are annuities whose return rate is tied to a financial index, such as the S&P 500. They are advertised as ways to consistently make market returns of 7-8% without risking the losses one would incur on the stock market. Of course, this is not always true, and often the product is oversold to people who don’t truly understand the risks and downsides of the product they have invested in.
Indexed annuities were invented in the mid-1990s to provide an answer to the increasing rates of CD accounts. Typical annuities could not offer competing rates to the 5% CDs were offering, and as a result they were losing market share. At a time when the market was booming, it seemed like a viable option to tie the annuity rate to the market.
The Downside of indexed annuities
However, in the years since, it has become increasingly apparent that despite the growing claims and sales of such policies, they rarely meet the expectations of their purchasers. Rates of return can fluctuate wildly, and this is rarely a good thing for an annuitant living on a fixed income. Although they were initially intended to act as supplemental investments for those with reserve savings, they are increasingly being sold to those who depend on a steady income to live.
The reason for this is straightforward: Indexed annuities provide the largest rewards for companies and brokers who sell them. Brokers take larger commissions, companies take a portion of market returns, and both parties try to sell indexed annuities without thinking too hard about the benefit to the client. Annuity companies often reward brokers who sell the most indexed annuities with prizes, parties, and bonuses.
Major sellers of indexed annuities include:
- Pacific Life
- Minnesota Life
- Aegon USA
- National Life Group
- Penn Mutual
- Old Mutual Financial
- Midland National Life
- Allstate Life
- NACOLAH Life (Illinois)
If you or a loved one owns an indexed annuity and would like to have it evaluated, contact us for a free initial consultation. Our firm handles annuity, insurance, and banking fraud, as well as financial and physical elder abuse, qui tam and whistleblower cases, and nursing home abuse. We can be reached at (415) 441-8669, or online at evanslaw.com.