Penalties When You Need Your Money Back
Complex Policies And Costly Riders
Like many financial products and certain forms of life insurance, deferred annuities are complex and come in multiple forms and hybrid combination of forms (like fixed indexed annuities). The basic premise of deferred annuities sounds simple: you make an upfront premium payment in exchange for an income stream in years to come. But in reality deferred annuity contracts are written so as to protect the issuing carrier at every turn and what you ultimately receive (if anything) may be nothing like what you thought you were being sold. Evans Law Firm, Inc. generally recommends against certain types of deferred annuities for older consumers because these complex, expensive insurance policies may tie up a senior’s money for years and impose significant penalties if you need your money back. Sales and recommended surrenders and exchanges of deferred annuities to seniors may constitute financial elder abuse claims under Cal. Welf. & Inst. Code §§ 15610.30 (definition of financial elder abuse) and 10509 (suitability requirement). Questionable sales tactics, like unannounced home visits or falsified applications, are illegal. See, e.g., Cal. Ins. Code § 790 et seq. (Unfair Insurance Practices Act). If you are over 60, and live in Los Angles or elsewhere in California and would like us to review your annuity contract, call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy.
Downsides of Annuities
There is a lack of flexibility and liquidity with deferred annuities which, when broken, can incur high fees. When you put a lump sum into an annuity, essentially you’re surrendering your money for the term of your contract. If you’ve invested $100,000 in a deferred annuity that isn’t set to pay out for 10 years, but after five you need $50,000 back for an emergency, that withdrawal can incur a penalty. You will also incur a tax liability and annuity withdrawals may be taxed at ordinary income tax rates not the lower capital gains rate.
Fees and Commissions
Two of the big downsides of annuities are high fees and a lack of liquidity with your money. Annuities can be customized in a number of ways through riders, and the final result can be a much more robust investment product. They can even be set up like life insurance where, should you happen to pass before you’ve recouped the entirety of your initial investment, the money is passed down to benefactors, for example. Broker fees and service fees are high for this level of customization, however.
In fact, when the Department of Labor was looking to pass a fiduciary rule in 2016 that pretty much said brokers needed to act in their clients’ best interests, sales of annuities dipped substantially. Then, when the rule was overridden in 2019, sales of annuities surged. The reason brokers favor annuities is that they can make upwards of 10% in commission off the principal, which can mean a $10,000 payday on a $100,000 annuity sale, with fees increasing the more the annuity is amended and customized.
One final sticking point with annuities is that they’re primarily bought through insurance companies, which are not backed by the federal government in the same way that banks are. (Even if a bank rep is offering you the annuity it will not be an insured deposit lie CDs or other bank deposits.) Because there is no FDIC insurance behind an annuity purchase, if the insurance company happens to fold, you risk losing everything you invested.
If you are over 60 and live in Los Angeles or elsewhere in California and would like a free review of your policy contact Ingrid M. Evans at Evans Law Firm, Inc. at (415) 441-8669 (or toll free at 1-888-50EVANS), or by email at <ahref=”mailto:firstname.lastname@example.org”>email@example.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
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
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.