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Nov 16, 2021 by |

Santa Clara County Financial Elder Abuse Attorney: Understanding The Problems Of Deferred Annuities For Seniors

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.

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