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Jun 14, 2021 by |

San Francisco Financial Elder Abuse Attorneys: Dangers of Fixed Indexed Annuities For Seniors


Understand How Complex Deferred Annuities Are

Fixed Indexed Annuities Are Particularly Complex

Avoid Suggestions To Replace Existing Annuities

Sales of any kind of insurance product generate commissions for insurance agents.  Deferred annuities generate commissions as high as 10% so they are a favorite insurance product for agents to sell.  In particular, insurance agents promote one form of deferred annuities – fixed indexed annuities (FIAs) – as a safe product “guaranteeing” income for the future without the downside risks of market volatility. Evans Law Firm, Inc. advises against these policies for seniors because they are expensive, complex and costly to get out of once you’re in.  If an agent suggests the policyholder trade or exchange an existing contract for a new one be especially cautious.  While the agent will receive a commission on an exchange, these transactions can result in surrender penalties on the old policy and large, unexpected, tax bills on the surrender. Agents often do not understand the tax implications or if they do, may not explain the tax implications.  We 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 San Francisco or throughout California. Call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy. 

Sales Commissions, Contract Fees and Surrender Charges

An upfront sales commission of any percentage comes right out of your investment in any annuity.  When selling you that contract, the agent may try and convince you that a “premium bonus” under the contract will reimburse you for that expense but don’t buy that promise. Premium bonuses are gimmicks and you may never withdraw or receive the “bonus” back.  FIAs also carry various fees including administrative fees, mortality and expense fees, rider fees for policy enhancements (like death benefits and income riders), and subaccount fees charged against your return. Together, these fees can run as high as 2-3% and will erode or wipe out any return you may expect on your money. But the surrender charges imposed whenever you withdraw your money are the greatest pitfall in these contracts.  Surrender fees are often as high as 15% and can apply for periods up to ten years or more. If you want to move your money to another investment or need it for an emergency, the surrender charge will reduce the amount you receive.

Return Calculations

The returns on your money in FIAs are calculated by methods that do not benefit you. First, policy returns are capped at a percentage which will be less than the fund’s real return in any given year.  Second, dividends on the stocks in the fund are not reinvested as with a direct investment in the fund.  Third, any gains you receive are limited by the policy’s “participation rate.”  For example, if you have a participation rate of 80%, your investments will only grow by 80% of the amount that the index fund grew. Direct mutual fund investments do not carry these caps and limitations, and if you make your mutual fund investment through an IRA or other tax-deferred vehicle, you will also reap the benefits of tax deferral.  Annuity investments on the other hand, always have tax consequences so never buy or surrender or replace an existing annuity without first consulting your tax advisor.

Replacements or Exchanges Are Costly

Under California law, insurance agents are not permitted to recommend 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).   Despite the prohibition, agents recommend exchanges that do not necessarily generate that “substantial financial benefit” to the policyholder. We 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 and getting a second opinion from an investment professional with nothing to gain from the exchange.

Contact Us

If you are over age 60 and have lost money as the result of a deferred annuity transaction or surrender call Ingrid M. Evans at (415) 441-8669 (or toll free at 1-888-50EVANS)  or by email at <ahref=””></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


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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