ATTORNEY NEWSLETTER
Questionable Sales Tactics Targeting Seniors
Deferred Annuities Are Illiquid, Expensive And Poor Performing
“Teaser” Interest Rates And Unsuitable Exchanges
Deferred annuities contracts are expensive and complex insurance policies. Deferred annuities are not investments in index funds despite labels like indexed annuities. Evans Law Firm, Inc. recommends against annuities for older consumers because they are expensive and complicated but principally because these contracts tie up a senior’s money for years, imposing heavy surrender penalties if you need your money before the annuitization phase kicks in. Sales of unsuitable deferred annuities or universal life insurance may be a form of financial elder abuse and sales practices used by the agent may violate the California Insurance Code in certain situations. Cal. Weld. & Inst. Code § 15610.30 (definition of financial elder abuse); Cal. Ins. § 790 et seq. (Unfair Insurance Practices Act). If you are over 60, live in Santa Clara County or elsewhere in 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
Surrender charges under deferred annuity contracts can be as high as 15% of your account value if you leave after one year, and the fees may continue for ten years or more. Surrenders also result in the loss of other policy benefits such as any “bonuses” you may have been promised to offset the sales commission that was paid to the insurance agent out of your premium payment. Further, in addition to the surrender penalty and loss of policy benefits, you may face a tax bill on the amount surrendered at ordinary income tax rates. Contributions to an annuity are tax-deferred, but any withdrawals you make will be taxed at your regular income tax rate, not the long-term capital gains tax rate. The capital gains tax rates are lower than the income tax rates in many places. So you are more likely to save on taxes if you invest your after-tax dollars instead of investing in an annuity.
Questionable Sales Tactics
Most deferred annuities are sold by independent agents motivated by their own financial self-interest. Sales agent commissions are often as high as 15 percent and are priced into the products. High-pressure sales tactics at free lunch seminars or misleading advertising may be employed as sales tactics. For example, agents often claim a “premium bonus” feature of a deferred annuity contract will repay the policyholder the commission amount but such bonuses are phantoms – you can never take out this “bonus” amount and if you need your money back and surrender your policy the bonus disappears. Equally questionable are the “teaser” rates that look promising but only lasts for a short time and may be reduced by contract fees. Significant sales commissions and annual fees mean that these products typically underperform direct investments in stock and bond funds.
Exchanges And Replacement Transactions
Of all the questionable sales tactics, one of the most damaging is when senior consumers are rolled from one annuity to another. While California insurance law protects seniors from unsuitable exchanges (see, e.g., Cal. Ins. Code §10509.914), agents still may try and convince consumers to exchange the annuity they own into another, unsuitable contract. There are several dangers in contract exchanges: surrender penalties on the surrendered contract, tax on the proceeds from the surrendered contract, and the fact that the surrender period resets under the new contract. Say the old contract had two or three years left in the surrender period. Under the new contract, the surrender period resets so that the consumer may have another 10-15 years to wait before they can withdraw their money without penalty.
Contact Us
If you are over 60 and live in Santa Clara County or elsewhere in 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: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.
