415-441-8669 | TOLL FREE: 888-50EVANS

Variable Annuities

A variable annuity is a type of immediate annuity whose payouts vary in accordance with the performance of investments – usually bond or equity mutual funds.

In a variable annuity, various percentages of the premium are allocated to different investments. Buying a variable annuity is very similar to investing in the stock market. Investors use a prospectus to determine which investments are most likely to produce high interest rates and gains.

In an variable annuity, the client or the insurance agency chooses to invest the premium in a variety of investment options: typically mutual funds that invest in stocks, bonds, money market instruments, or any combination of the above. The periodic payouts of the annuity then vary depending on the performance of the investments.

Contact an experienced attorney at Evans Law Firm for a free and confidential consultation.

What are some features of a variable annuity?

A variable annuity have most of the same features of a non-variable annuity, depending on whether they are immediate or deferred annuities. Like fixed annuities, variable annuities are tax-deferred and provide periodic payouts after a client’s initial premium investment.

The main difference between variable and fixed annuities is that the periodic payouts of variable annuities differ according to the performance of the investments. Whereas fixed annuities offer a guaranteed minimum rate of increase, variable annuities may increase or decrease depending on the performance of the investments. This can be advantageous in some cases, but also creates a higher risk.

What are some risks of variable annuities?

The most apparent risk associated with a variable annuity is the risk that the investments on which your payouts rely do poorly, thus reducing the value of the payouts. However, there are other risks associated with variable annuities. Most of these have to do with the huge amount of fees – often hidden – that are linked to variable annuities.

Like those of deferred annuities, variable annuity contracts usually contain high surrender charges. If you decide to cancel the contract or withdraw your premium, it usually comes at a high cost. Sellers often receive commissions of 5% or more, encouraging them to sell these annuities quite aggressively.

Two risks associated specifically with variable annuities are mortality and expense risk charges and administrative fees. The mortality and expense risk charge is a “compensation” to the insurance agency for the insurance risks it undergoes. This charge is also sometimes used to pay a commission to the annuity salesperson. The mortality and expense risk charge tends to be around 1.25% of the premium.
Administrative fees associated with a variable annuity are fees for record-keeping and maintenance, which total around .15% of the premium.

Another risk associated with a variable annuity is the Early Withdrawal Penalty. This is incurred if the client chooses to withdraw any funds before the age of 59.5. The result is a 10% tax penalty.

Many variable annuities often include annual fees that fall between 1-3% of the premium.

A variable annuity often promise more than they return. Because of caps and hidden fees, variable annuities often do not produce returns as high as their investments. This is due to caps and fees that are often hidden in the contract and use complex terminology.

Because variable annuities are insurance products and not “securities,” sellers of variable annuities are not required to disclose ways to decipher hidden fees and costs or to easily view where the premium is invested and how the investments are performing. This results in the client having very little information about the investments and their relation to the performance of the annuity itself.

Variable annuities and the elderly:

Contact an experienced attorney at Evans Law Firm for a free and confidential consultation.

Variable annuities are one of the most complex types of annuity available because they require in-depth knowledge of stocks, bonds, money market instruments, and other investments. Unfortunately, insurance companies try to send out the exact opposite message. By framing variable annuities as simple high-reward investments, insurance agencies and annuity salespeople attract clients who do not know how to decipher the complexities of a variable annuity. Having an uninformed client base allows the agency or salesperson to take advantage of their clients by charging high fees and commissions. Usually, variable annuities do result in some growth, which leads the client to believe they are doing well. Yet, the annuities consistently under perform with relation to their investments, which means that the clients are not receiving all their profits.

Elderly clients are as equally disadvantaged as younger people who are not well-versed in investment theory and terminology, but tend to be more targeted due to their stable and accumulated income and their tendency to search for retirement options.

However, variable annuities are almost never the right option for the elderly, due to exorbitant fees and charges and the complexity of the investment process.

What are some companies that sell variable annuities to senior citizens?

The following companies are some top sellers of a variable annuity:

  • ING
  • Jackson National Life
  • Lincoln Financial Group
  • MetLife Inc.
  • Prudential Annuities
  • Sun Life Assurance Co. of Canada
  • Symetra Financial
  • TIAA-CREF
  • Symetra Financial
  • Sun Life Assurance Co. of Canada
  • ING
Million Dollar Advocates Forum SuperLawyers Badge Best Lawyers Badge Avvo Lawyer Badge

Our Passion For Justice

415-441-8669 888-50EVANS

Hear What Our Clients Have To Say

"I contacted Attorney Ingrid Evans for advice about a financial elder abuse case. She was extremely knowledgeable, bright and informative. I highly recommend her. I am an attorney myself, and know when I am talking to a another excellent attorney."