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.
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.
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: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.