Older Consumers Should Be Wary Of Deferred Annuities
Loss Of Investment Control
Surrender Penalties, Fees, Participation Rates, And Caps
Evans Law Firm, Inc. generally recommends older consumers avoid deferred annuities because they are expensive and complicated and because these contracts tie up a senior’s money for years. Whenever an insurance agent or financial advisor of any kind suggests an indexed annuity for you, be wary, especially if you are retired or nearing retirement. Indexed annuities, like most deferred annuities, impose penalties, known as surrender charges, if you need your money before the annuitization phase kicks in; surrender charges can be as high as 10% or more and last for up to ten or more years into a contract. Sales tactics for these policies may 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. Unsuitable policies and deceptive or aggressive sales tactics may also violate legal protections for older consumers in particular. 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 Santa Barbara or elsewhere in Southern California 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.
Surrender Penalties, Fees, Participation Rates And Caps
There are a number of features that bear scrutiny with these complicated insurance contracts. Three features of particular concern for senior policyholders are:
- Surrender Penalties. A principal reason why the products are so inappropriate for older Americans is that heavy surrender penalties apply if the money is needed before the annuitization phase kicks in. If you buy at age 65, you’re generally looking at a 10- to 15-year surrender period, with a penalty as high as 25 percent at the front end. (These surrender penalties are often characterized to prospects as “liquidity features.”)
- 2. Commissions And Sales agent commissions are often as high as 15 percent and are priced into the products, while the company’s’ own internal rate of return is typically 12 percent on top of that. Deferred fixed annuities often pay an attractive “teaser” interest rate that lasts only for a short time. In addition, these annuities assess maintenance fees and other creative “administrative” fees to reduce the amount the annuitant actually receives. All this means that these products can be far outperformed by a simple portfolio of stock and bond funds..
- Participation Rates And Caps On Performance. Carriers will typically impose a “participation rate” set below 100% so if the index you chose increases you will not get a 100% of that return, but a lower percentage. Annuity providers also determine a “cap rate,” an interest rate that limits the growth of an indexed annuity. This cap ensures that the annuity provider can meet their obligations and still make a profit on the product.
If you are over 60 and live in Santa Barbara or elsewhere in Southern 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.