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Nov 6, 2022 by |

Sonoma County Financial Elder Abuse And Annuity Attorney: Why Deferred Annuities Are Unsuitable Investments For Seniors

ATTORNEY NEWSLETTER

Understanding How Deferred Annuities Work

Surrender Penalties A Big Downside For Seniors

Commissions, Fees, Participation Rates And Caps

Deferred annuities are insurance contracts where the policyholder pays a premium to an insurance carrier now for income payments in the future.  Evans Law Firm, Inc. generally recommends against deferred annuities for older consumers 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 suggest an indexed annuity for you, be wary, especially if you are retired or nearing retirement.  Sales and recommended surrenders and exchanges of deferred annuities to seniors may constitute financial elder abuse claims under Cal. Welf. & Inst. Code § 15610.30. Questionable sales tactics, like unannounced home visits or falsified applications, are illegal.  See, e.g., Cal. Ins. Code § 790 et seq. (Unfair Insurance Practices Act).  If you are over 60, and live in Sonoma County or elsewhere in California and would like us to review your annuity contract, 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 seniors policyholders are:

  1. 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.
  2. 2. 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.
  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,” a ceiling on returns 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 Sonoma County or elsewhere in California and would like a free review of your policy 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=”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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