Understanding The Disadvantages Of Deferred Annuities
Particular Dangers For Older Consumers
Some Of The Primary Downsides Explained
Evans Law Firm, Inc. generally recommends against deferred annuities for older consumers because they are expensive and complicated and because these contracts tie up a senior’s money for years. Deferred annuities impose significant surrender penalties if you need your money before the annuitization phase kicks in. Sales tactics can be aggressive and agents may try to rush a senior into a transaction or fail to provide all the information necessary to understand how a policy works. The policy may be unsuitable and the sales tactics may constitute violations of insurance laws and elder protections. Cal. Weld. & Inst. Code § 15610.30 (definition of financial elder abuse); Cal. Ins. § 790 et seq. (Unfair Insurance Practices Act). Senior victims may sue for damages and other relief including awards of attorneys’ fees and expenses for bringing your case. Cal. Welf. & Inst. Code § 15657.5. If you are over 60, live in San Francisco or elsewhere in the Bay Area or throughout the State of California and own a deferred annuity, call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy.
Why Are Annuities Poor Choices For Retirement Accounts?
- Severely Penalize the Investor if They Need Their Money. For insurance companies to recover the costs of selling a variable annuity and retain customers, they carry hefty surrender charges that will decline over time. A surrender charge is a fee assessed on investors assets if they move money out of a variable annuity. The surrender charges are often 5 to 7 percent of assets in year one and decline one percent a year until they go away over the next 5 to 7 years.
- No Additional Tax Benefit. A 401k, 403(b) or 457 retirement account is a vehicle for investors to invest tax-free (deferred) for retirement. Consequently, any tax benefit that annuities offer is completely worthless and provides no tax relief beyond what the plan does itself.
- 3. Charge High Fees. Deferred annuities are expensive. According to a recent Investment Company Institute (“ICI”) study, the simple average expense ratio (includes investment management and transaction fees) of equity mutual funds was 1.28 percent in 2016. Conversely, annuity fees can run in the range of 2.5 percent to 3 percent a year.
- Lackluster Performance. There are two issues that negatively impact the performance of a variable annuity. Some insurance companies promote their own mutual funds or investment accounts in variable annuities. The mutual funds that they use tend to be mutual funds that are underperforming or don’t have a lot of assets in them. So, they use these funds to create another income stream for the company. Good for the insurance company and bad for the investor since it often leads to lackluster investment performance. Additionally, with the total costs of variable annuities hovering in the 2.5 percent to 3 percent range per year, the added costs make it difficult to achieve a decent return on the investments.
- Death Benefit is Worthless. Although the insurance industry positions the death benefit as a way of protecting principal, this coverage is infrequently used and carries a high price tag. The only way investors can enjoy the insurance benefit is by dying with an account balance that is less than their original contribution minus any withdrawals.
- High Commissions. Those who sell deferred annuities are handsomely rewarded for their efforts. Insurance companies pay commissions that range from 5 percent to 9 percent of invested assets.
If you are over 60 and live in Marin County or elsewhere in the Bay Area or State of California and have a deferred annuity or universal life insurance contract, we can review your contract for free. You can reach Ingrid M. Evans at Evans Law Firm, Inc. at (415) 441-8669, or toll free at 1-888-50EVANS or by email at <a href=”mailto:email@example.com”>firstname.lastname@example.org</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.