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Sep 30, 2024 by |

Santa Clara County Financial Elder Abuse And Annuity Attorney: Disadvantages Of Deferred For Seniors

ATTORNEY NEWSLETTER

Complicated Insurance Contracts With High Sales Commissions

Surrender Penalties Lock You In

Diminished Returns And Investment Risks

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. Further disadvantages for seniors are low returns, high commissions, annual fees and administrative charges, and the long delay (surrender period) before you will ever receive any income payments.   Even if you are able to wait out the surrender period (which can be 10 or more years), the upfront sales commission (taken out of your premium) and annual fees diminish the return on your money.  Further, market changes during the surrender period may drive you to move your money out of the annuity; to do so, however, you will have to pay a surrender charge and face a tax liability.  Annuities may be sold based on incomplete information about these withdrawal consequences or other contract pitfalls. Questionable or incomplete sales tactics and presentations and the policies themselves may constitute violations of insurance laws and elder protections. Cal. Welf. & Inst. Code § 15610.30 (definition of financial elder abuse); Cal. Ins. § 790 et seq. (Unfair Insurance Practices Act).  Relief for injured seniors includes awards of attorneys’ fees and expenses for bringing your case.  Cal. Welf. & Inst. Code § 15657.5.  If you are over 60, live in Sata Clara County 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. 

Commissions, Fees, Surrender Penalties 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:

1. Sales Commissions And Deferred annuities are expensive. First, a selling agent receives a significant commission on the sale of the contract to you which can be around 8%. That comes straight out of your premium.  Yearly expenses can be high too. Conversely, annuity fees can run in the range of 2.5 percent to 3 percent a year (versus 1-1.2% average on mutual funds).  If an agent sells you additional policy features, known as “riders,” you will pay more for those too, and your return may be eroded by another 1-2% or more annually.

2. Surrender Penalties. A surrender charge is a fee assessed on investors assets if they move money out of a deferred annuity. The surrender charges are often 5 to 7 percent of assets in year one and decline one percent a year until they go away over the next 5 to 7 years. If an older person needs their money for an emergency or because their living and care expenses have increased beyond what they expected, will be penalized by an early surrender of their contract.  Direct mutual fund investments do not penalize withdrawals.

3. 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.

Contact Us

If you are over 60 and live in Santa Clara County 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: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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