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Apr 29, 2021 by |

Los Angeles Financial Elder Abuse and Annuity Attorneys: Fixed Indexed Annuities And Seniors

ATTORNEY NEWSLETTER

Seniors And Fixed Indexed Annuities

High Commissions, Fees, And Surrender Penalties

Policy Exchanges As Taxable Events

Deferred annuities are complex insurance products.  Carriers that issue the products pay handsome sales commissions to the agents who sell the products to consumers.  With old consumers especially, an agent may propose a form of deferred annuity known as a fixed indexed annuity (FIA) contracts; these FIAs are hybrids of a fixed rate of return and a rate of return tied to a selected market index.  This combination, the agent may tell you, makes for  income safety in volatile markets.  The agent may go so far as to say you urgently need the product if you don’t already own an annuity or replace one if you do.  Never succumb to this kind of pressure or let yourself be rushed.  Always consult a professional advisor with nothing to gain from the sale and you tax advisor.  FIAs are costly to get out of once you’re in.  Also, if you already own an annuity, any exchange may result in a big, unexpected, tax bill.  The Los Angeles financial elder abuse and annuity attorneys at Evans Law Firm, Inc. 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 Los Angeles or throughout California. Call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy. 

Three Important Takeaways

If you are considering an FIA here are probably the most important three takeaways from this blog:

  • Annuity distributions are taxed as ordinary income, which is a higher rate than that for the capital gains you get from other retirement accounts.
  • Annuities charge withdrawal (known as surrender penalties or charges) fees if you take money out; surrender charges may be assessed on withdrawals during the first 10-15 year of the policy under some contracts.
  • Salespeople get large commissions from selling annuities, which come at your expense in the form of hidden charges and fees.

Other Considerations

FIAs also have administrative fees, mortality and expense fees, rider fees for enhancements to policies, and subaccount fees charged against your return on whatever index fund you select. Combined these fees can run as high as 2-3% and will erode or wipe out any return you may expect on your money. Return calculations under FIAs do not work to your advantage either. First, your return will be capped at a percentage that may be less than the fund’s real return in any given year.  Second, you do not receive the benefit of reinvested dividends on the stocks in the fund as you would with a direct investment in the fund.  Third, the insurance company will also limit your gains through something called a “participation rate.”  If you have a participation rate of 80%, then your investments will only grow by 80% of the amount that the index fund grew.

Avoid Replacements or Exchanges

California law forbids insurance agents from recommending 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).  Our financial elder abuse and annuity litigators 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.

Contact Us

Ingrid M. Evans and the other Los Angeles financial elder abuse and annuity attorneys at Evans Law Firm, Inc. can help you or a senior loved one if you or your loved one has lost money as the result of a deferred annuity transaction or surrender.   Ingrid and the other Evans Law Firm, Inc. LA attorneys can be reached 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.

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