ATTORNEY NEWSLETTER
Variable Annuities Examined in Priority by SEC for 2016, Advantage and Disadvantage
The SEC (Securities and Exchange Commission) disclosed its examination priorities list for 2016. The SEC is focused on retirement investments, and especially variable annuities as a retirement product warranting attention. The insurance companies are interested in a few states to sell the variable annuities, particularly in California where the population is more concentrated on retirement investment.
A variable annuity is a contract between an insured person and an insurance company, wherein the insurer agrees to make periodic payments to the insured, beginning either immediately or at some future date. The insurer invests the premium, and the return on investment (resulting profit) funds the payments received by the insured and compensate the insurer. Usually, there are supposed to be three advantages to purchasing a variable annuity:
- The insured receives periodic payments for the rest of his life. From this perspective, the variable annuity is a retirement product.
- The variable annuities have a death benefit. At the insured’s death, the beneficiary chosen by the insured will receive a specified amount, typically at least the amount of the insured’s purchase payments.
- The variable annuities are tax-deferred. The insured pays no taxes on the income and investment gains from his annuity until the insured withdraws the money.
However, although the variable annuities seems seductive, the consumer should be careful, because every advantage has its disadvantage. The most important are:
- The variable annuity is a potential loss of capital, as they can depreciate in value.
- The insurance company imposes a penalty if the insured withdraws over the yearly allotment, and also imposes management fee and an annual contract fee every year.
- The variable annuities could be not considered as a capital gain, but rather at the ordinary income tax rates. Also, IRS charges 10 percent tax penalty on income withdrawals before the age of 59.5.
Because the variable annuities stay popular, but could be dangerous, the SEC decided to make a thorough examination. The SEC will assess various points of variable annuities: if the variable investment is the best investment option for the investor; if the customer receives adequate disclosure about the risks and the mechanism through the marketing material; and also the method of sales of the variable annuities especially the compensation received by the representative to recommend this product.
Finally, the SEC is not the only institution focused on this matter, the FINRA (the Financial Industry Regulatory Authority) was concentrated on the variable annuities and made a topic of its examination priority in 2015, especially the sale practices.
If you have any trouble with your annuity or against your insurance company, contact the Evans Law Firm at (415) 441-8669, or by email at info@evanslaw.com. Evans Law Firm handle insurance, annuity fraud, as well as, banking fraud, qui tam and whistleblower cases, financial and physical elder abuse, nursing home abuse, and healthcare fraud.
