How to Avoid Annuity Fraud

Annuities are insurance products that individuals can purchase as part of their retirement portfolio.

Customers invest into the annuity and then payments are made from it at a future date. Customers can decide if they want the annuities paid out monthly, quarterly, annually or in a lump sum payment. Payments can be made for a certain time period or for the remainder of the person’s life. Annuities are a popular retirement product because they can provide seniors with a steady stream of income in their retirement years.

While they are helpful for planning a retirement, annuities aren’t necessarily the best investment for everyone because they are very expensive. Because of the money insurance companies make from annuities, seniors need to be aware of the risk of annuity fraud.

There are two types of annuities — a fixed annuity or a variable annuity. A fixed annuity is like a CD that has guaranteed interest rates that a person makes on their investment. They can be deferred or immediate. Immediate fixed annuities provide guaranteed rates of interest, which is why they are popular among seniors.

Variable annuities are tax-deferred and are based on a variety of investments. The amount of income a person gets from a variable annuity is based on how well those investments perform.

While variable annuities may be the right choice for someone 20 or 30 years prior to retirement, they are typically not a good investment for someone closer to retirement because they are also prone to losses, which can be hard to make up in the short term.

Avoid Senior Annuity Fraud

Insurers often push variable annuities because they have high upfront commissions in addition to ongoing “trailer” commissions, as well as fees for the mutual funds that are included in the annuities. Seniors who are pushed into these variable annuities are often told they are safe investments when they are actually prone to the fluctuations in the market.

It is important that seniors are educated about the different annuity options out there. Seniors also need to be sure to avoid salesmen who are using high pressure to push them into a certain annuity. Often, insurance salesmen will tell seniors that they have buy certain annuity “today.” Seniors should always tell them that they need more time to think it through.

Seniors should also be wary of an insurance agent who sold an annuity to them last year but is recommending that it be replaced. The insurance agent needs to explain clearly why this is the case.

The U.S. Securities and Exchange Commission recommends that before buying an annuity that consumers check to see if the broker-dealers and investment advisers are registered with the federal agency through their BrokerCheck website.

Seniors also need to be aware of lunch or dinner seminars, which are often high-pressure sales situations. Some agents will often use the opportunity to meet with individuals in a one-on-one appointment, which will be for the purpose of trying to sell something.

If you or someone you know was a victim of fraudulent activity due to an annuity or life insurance policy, legal action is available to you through an investment fraud attorney. Contact the Life Insurance, Annuities Fraud Class Action Lawsuit Investigation for a free review or your case.