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Oct 19, 2021 by |

Santa Cruz County Financial Elder Abuse Attorney: Return Calculations, Fees, And Surrender Charges In Deferred Annuities


Disadvantages For Older Consumers Especially

Limitations On Returns And Accumulated Fees

Getting Out Of An Annuity Is Expensive

Evans Law Firm, Inc. recommends that seniors avoid deferred annuities because over the years we have seen many older consumers lose money on deferred annuities as the result of high sales commissions, annual fees and rider fees; returns on premiums that are considerably lower than advertised; and, withdrawal penalties.  While we do not provide tax advice at Evans Law Firm, we have seen older consumers faced with large tax bills upon a surrender of a contract in addition to the surrender penalties imposed by the carrier. Sales of unsuitable deferred annuities to seniors may constitute financial elder abuse claims under Cal. Welf. & Inst. Code § 15610.30 and senior protections under the California Insurance Code against agents and carriers. See, e.g., Cal. Ins. Code §§ 785-789.10 and 10127.10 and 10127.13. If you are over 60, and live in Santa Cruz County or elsewhere in California and have experienced an economic loss as a result of the sale of an unsuitable annuity or other investment product, including a fixed indexed annuity, call us today at 415-441-8669 (or toll free at 1-888-50EVANS) for a free review of your policy. 

Returns of an Annuity Will Not Match Investment Returns

The returns you earn from an indexed annuity are not based on investment decisions you make. Instead, your money will follow the performance of a stock market index, like the S&P 500. But your money isn’t actually invested in the index and even the index return will be reduced by participation rates and rate caps. Here’s how they work:

  • Participation rate: Let’s say the S&P 500 grows by 10% in a year and your contract has a 60% participation rate. The annuity company will then take that 10% growth and give you 60% of it, which would equal 6%.
  • Rate cap: In this scenario, let’s assume the S&P 500 grows by 8% over a year, and your contract has a 5% rate cap. The result would be that your contract receives a 5% return, since the rate cap limits how much your contract can earn.

Fees will also erode your return.  Annuity contract fees may include:

  • Mortality and expense fee
  • Administrative fee
  • Contract maintenance charge
  • Subaccount fee
  • State premium tax
  • Investment transfer fee
  • Contingent deferred sales charge, also called a “surrender charge”
  • Principal protection
  • Inflation protection/cost-of-living adjustment
  • Long-term care rider
  • Lifetime income rider

Getting Out of an Annuity Will Be Expensive

You’re also likely to face a prohibitive surrender charge for pulling money out of an annuity within the first several years after you buy it. The surrender charge 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. Note that some annuities come with even heftier surrender charges – up to 20% in the first year. In addition to the surrender charge, 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.

Contact Us

If you are over 60 and live in Santa Cruz County, San Francisco or elsewhere in the Bay Area or throughout California and have lost money on a deferred annuity or indexed universal life insurance contact Ingrid M. Evans at Evans Law Firm, Inc. at (415) 441-8669 (or toll free at 1-888-50EVANS), or by email at <ahref=””></a>. Ingrid will pursue all remedies available to you against all parties responsible, including restitution (getting your money back), extra damages (to punish the fraudulent conduct) and awards of attorneys’ fees and costs to the senior forced to bring an action against the wrongdoers. 

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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