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Aug 24, 2021 by |

Sonoma County Financial Elder Abuse Attorney: Deferred Annuities And Seniors


Understanding How Deferred Annuities Work

High Fees And Low Returns

Years Of Withdrawal Penalties

An annuity is a contract between you and an insurance company. With a deferred annuity, you pay for the annuity through a lump sum or multiple premium payments, and the company promises to pay you a series of income payments in the future.  A fixed annuity grows at a set interest rate and an indexed annuity supposedly grows at the rate of a chosen index.  Once you’re ready to begin receiving payments, your annuity contract will enter the annuitization phase.  Although we do not give investment advice, Evans Law Firm, Inc. recommends against deferred annuities, including fixed indexed annuities, for older consumers based on what we have seen in our litigation experience: sales commissions and annual fees on these policies are high; the return on your money rarely meets expectations (we have seen contracts produce zero returns even in strong markets); and, by penalizing you for any withdrawal, deferred annuities effectively tie up your money for years.  Once you’re sold an annuity it is very expensive to get out.  If you want to switch investments or just access your own money when you need it, you will pay a penalty.  Despite these pitfalls, insurance agents push these complex policies (over, say, direct mutual fund investments) because every sale generates a sizeable sales commission.  In the sales process, agents make guarantees and promises which are often illusory.  If you are over 60, and live in Sonoma, Napa, San Francisco 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. 

Limits on Return

With an indexed annuity you will be required to choose an index upon which the return on your premium dollars will be calculated.  But your return will not be the same as it would have been if you had simply made a direct investment into that fund.  It will be substantially less in fact.  Annuity companies use participation rates and rate caps with indexed contracts. 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.

Also, you will not receive the benefit of reinvested dividends.  Reinvested dividends are a major driving force behind favorable returns in mutual funds and understand that you will not have this benefit in your annuity.

Surrender Penalties, Fees, And High Pressure Sales Tactics

In addition to the limitations are return, fees, withdrawal penalties and sales tactics are also red flags when it comes to deferred annuities.  Here are several important considerations to bear in mind:

  • While immediate annuities may begin payments to the investor within the first year, deferred annuities may lock up an investor’s money for years before they can receive payments. Investors who need to access their money before the end of the deferral period typically pay hefty surrender penalties, even if the money is needed for emergency medical treatment or changes in living arrangements. A surrender penalty means that if the person needs access to their money during the surrender period, they lose part of their principal. Surrender penalties may be as much as 15 percent or more of the principal withdrawn. Some deferral periods last as long as 15 years. So if you’re sold an annuity when you are 70, you would not receive any income payments – or be able to withdraw your money without penalty – until you are 85!
  • Annual administration and mortality expense fees are charged under most deferred annuities and can average 1-1.5% annually. Those fees are a direct reduction of the return on your money.
  • High pressure sales tactics are real red flags. Do not be pressured by agents into making a decision quickly. Always get a second opinion and check your agent’s license with the California Department of Insurance.
  • Annuities are not insured investments like CDs even if they are sold by a rep at a bank. Future payments under your annuity are only as good as the carrier’s promise.

Contact Us

If you are over 60 and live in Sonoma, Napa, San Francisco or elsewhere in 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 by email at <a href=””></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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