For most people, annuities are a wonderful addition to their retirement plans. Fixed annuities are safe, secure and are guaranteed to fulfill their contractual promises. But, often the actual sales process brings a certain uneasiness to buying an annuity. If you have experienced this please be aware that many options exist for you if, in fact, you buy an annuity and don’t end up wanting it. All annuity companies offer a “free-look” period where you may return the annuity for any reason and receive a full refund. Make certain you fully understand your rights and options when you purchase an annuity, your agent or the insurance company will help you.
That being said, there are scams with annuities just as there are with almost any product being sold to the public. Here are some to be aware of.
Annuity Scam Number 1: You will never lose money!
This is both a true statement and a fraudulent statement. There is a certain class of annuities which offer exposure to risk; variable annuities. Variable annuities allow you to invest in sub accounts (much like mutual funds) where your value can go up and down. It is possible to have a substantial gain on your account value and to have a substantial loss. The value of your account is dependent on the choice of sub account you selected and how it performs. As an example, your account may be in stocks or bonds and actual results will be based on how they perform. Variable annuities are sold as a security by licensed security salespeople such as stockbrokers. The opposite is true with fixed rate annuities, their account value is never exposed to risk; your funds are actually deposits at an insurance company earning a fixed rate of interest.
Variable Annuities: More on variable annuities
Annuity Scam Number 2: Insurance agents selling Revocable Living Trusts (RLT).
You have probably seen the ads, “You need a trust to avoid probate” These ads appear in your mailbox offering a free “meeting” to determine if a RLT is right for you. The person meeting with you is actually an annuity salesperson who will explain to you the benefits of the RLT. They can even sell you the RLT, collect information and the first payment. These agents are practicing law without a license. You are told that they work with an attorney and the attorney will review all aspects of the RLT. An attorney does review the documents and signs the trust as an attorney, but you will never meet the attorney. This whole process is called a Trust Mill. In very few situations is a RLT actually needed, mostly for people who own multiple real estate properties. Why does the agent want to sell you the RLT? When they come back to deliver the trust they will help you retitle your assets in the trust, that is, when they find out what you own and begin looking for a possible annuity sale. This whole process is an annuity scam. If you feel you need a RLT, call an attorney and skip the insurance agent entirely.
Annuity Scam Number 3: Your annuity is about to expire, call immediately.
If you own an annuity you have probably seen these post cards in your mail box. Will your annuity expire? No, not until you reach age 115 (most contracts). The reason for the postcard to be sent to you is for a marketing company to identify annuity contract owners. Once you call they will attempt to set a time for an agent to “stop by” to review your current contract. Of course the real reason is for an agent to suggest you modernize your annuity. Don’t fall for it, if you have questions about your current annuity, call the service department of the insurance company. You will get straight answers about your annuity from them.
Annuity Scam Number 4: Phony certifications and designations.
The agent looks good, speaks well and is a “Certified Senior Adult Consultant” (CSAC).companies issue these designations and are just a way to make money from an agent not interested in real education. The Insurance industry does issue bona fide and genuine designations, degrees that can take years to accomplish. Make certain you fully understand who you are dealing with and what their actual background really is. Ask for references and credentials and check them out.
Annuities can be wonderful products when used as designed and only in situations where their benefits can help meet financial goals. Annuities are not for everyone.