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Jun 6, 2022 by |

San Francisco Financial Elder Abuse And Annuity Attorney: Understanding The Downsides Of Deferred Annuities

ATTORNEY NEWSLETTER

Fees And Penalties On Withdrawals 

Expensive Policy Riders And Other Complications

Not Insured Investments Like CDs

Like many financial products and certain forms of life insurance, annuities are complex and come in multiple forms, which makes them difficult to define with one broad stroke.  Deferred annuities are contracts where the policy holder makes an upfront premium payment in exchange from an income stream in years to come. Evans Law Firm, Inc. generally recommends against certain types of deferred annuities for older consumers because these complex, expensive insurance policies may tie up a senior’s money for years and impose significant penalties if you need your money back.  Sales and recommended surrenders and exchanges of deferred annuities to seniors may constitute financial elder abuse claims under Cal. Welf. & Inst. Code §§ 15610.30 (definition of financial elder abuse) and 10509 (suitability requirement).. Questionable sales tactics, like unannounced home visits or falsified applications, are illegal.  See, e.g., Cal. Ins. Code § 790 et seq. (Unfair Insurance Practices Act).  If you are over 60, and live in San Francisco or elsewhere in California and would like us to review your annuity contract, call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy. 

Downsides of Annuities

Fees and Commissions

Two of the big downsides of annuities are high fees and a lack of liquidity with your money. Annuities can be customized in a number of ways through riders, and the final result can be a much more robust investment product. They can even be set up like life insurance where, should you happen to pass before you’ve recouped the entirety of your initial investment, the money is passed down to benefactors, for example. Broker fees and service fees are high for this level of customization, however.

In fact, when the Department of Labor was looking to pass a fiduciary rule in 2016 that pretty much said brokers needed to act in their clients’ best interests, sales of annuities dipped substantially. Then, when the rule was overridden in 2019, sales of annuities surged. The reason brokers favor annuities is that they can make upwards of 10% in commission off the principal, which can mean a $10,000 payday on a $100,000 annuity sale, with fees increasing the more the annuity is amended and customized.

Surrender Penalties

There is a lack of flexibility and liquidity with deferred annuities which, when broken, can incur high fees. When you put a lump sum into an annuity, essentially you’re surrendering your money for the term of your contract. If you’ve invested $100,000 in a deferred annuity that isn’t set to pay out for 10 years, but after five you need $50,000 back for an emergency, that withdrawal can incur a penalty. You will also incur a tax liability and annuity withdrawals may be taxed at ordinary income tax rates not the lower capital gains rate.

Not Insured Investments

One final sticking point with annuities is that they’re primarily bought through insurance companies, which are not backed by the federal government in the same way that banks are. (Even if a bank rep is offering you the annuity it will not be an insured deposit lie CDs or other bank deposits.)  Because there is no FDIC insurance behind an annuity purchase, if the insurance company happens to fold, you risk losing everything you invested.

Contact Us

If you are over 60 and live in San Francisco or elsewhere in California and would like a free review of your policy contact Ingrid M. Evans at Evans Law Firm, Inc. 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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