Don't Get Trapped with an Abusive Annuity
The stock market has come crashing down. The interest rates that banks pay are lousy. The times are uncertain. People, especially seniors, are turning to insurance companies to purchase annuities to invest their nest eggs.
They want a better return than the interest currently earned on bank accounts or on certificates of deposits. They want the security of knowing that they will not lose their principal. An annuity can offer a better rate of return than a bank rate of return and secure principal if the insurance company can meet its commitments and the annuity guaranties a return of the initial investment. Not all insurance companies meet their commitments and not all annuities have a guaranty of the return of the initial investment.
Additionally, annuities offer the deferral of income tax on earnings until funds are withdrawn from the annuity. Sounds great. A good annuity purchased for the right reasons can be a good investment. A bad annuity can be a real trap.
What is an annuity? An annuity is a contract with an insurance company. There are three positions related to the annuity. First, there is the owner. The owner transfers funds to the insurance company and can take out investment and earnings under the terms of the contract as long as he or she is alive. Second, there is the annuitant. Eventually the annuity is paid out in some manner that relates to the life expectancy of the annuitant. Third, there is the beneficiary who gets funds, if any, that remain in the annuity after either the owner or the annuitant dies, depending on the terms of the annuity contract. Annuity contracts are very complicated and most people purchasing an annuity have little idea what they are getting into.
There are unscrupulous annuity sales persons who especially prey on seniors.
Because seniors are so concerned about preserving their nest egg they are
especially vulnerable. These salespersons can be very charming. Using their
charm and scare tactics they earn large commissions selling seniors abusive
annuities. They can be very aggressive, even driving the senior to the bank
to collect the funds to complete the annuity purchase. These annuities have
large surrender charges. Sometimes the initial surrender charges are as much
as 20%. Often the income tax deferral provides little benefit, if any, to
the senior buying the annuity. But the term "tax deferred" sounds
really good. Often the salesperson will try to isolate the senior so
that the senior does not seek advice from others about the annuity purchase.
These annuities become a very serious problem when the senior or his or her spouse need to access the funds for an emergency, to pay for long term care, or to plan for long term care costs. A huge surrender charge takes a real bite out of the nest egg.
If you are approached by an annuity salesperson, remember that you have the right not to buy and should be very comfortable with the product and salesperson before committing your hard earned funds to an annuity. Consider seeking professional advice from an attorney, accountant, or financial advisor you trust before committing to an annuity purchase. Don't be a victim of an abusive annuity sales person.
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Legal Disclaimer
This information has been provided for informational purposes only. It does
not constitute legal advice. The receipt of this information does not establish
an attorney-client privilege. Proper legal advice can only be given upon consideration
of all the relevant facts and laws. Therefore you should not act upon any
of the information contained herein without seeking appropriate legal counsel.
Attorneys Judith Sterling and Michelle Tucker are both CPAs and licensed attorneys. They are the first two attorneys in Hawaii to be certified by the American Bar Association (ABA) accredited Estate Law Specialist Board, Inc., as Estate Planning Law Specialists, and are so certified by the Supreme Court of Hawaii. The Supreme Court of Hawaii grants Hawaii certification only to lawyers in good standing who have successfully completed a specialty program accredited by the ABA.
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