Are Deferred Annuities for Real?

According to the financial information website Investopedia, a deferred annuity is a contract with an insurance company that promises to pay the owner a regular income, or a lump sum, at some future date. An immediate annuity, in contrast, is an insurance contract that starts paying as soon as you purchase it. Deferred annuities are often aggressively marketed to consumers, especially elderly consumers, but some would say they have become the scourge of the unwary investor in recent years. They are presented as safe-sounding investment vehicles but often hide or outright misstate unfavorable terms, costs, or rates of return. If you think you may have been scammed by an unscrupulous annuity provider, it’s time to get hold of an experienced insurance law attorney who can wade through the opaque financial terms contained within deferred annuities and help you get your money back.

What is a deferred annuity?

A typical annuity involves an individual purchasing a guaranteed stream of income, often via monthly payments, in exchange for a lump-sum payment. Annuity terms are generally tied to an annuitant’s life; the annuitant pays the premium and then receives monthly payments, with interest, for a set period of time or until they die. In a deferred annuity, a purchaser similarly deposits premiums with a life insurance company and receives a rate of return. Unlike a typical annuity, in a deferred annuity the payout is deferred until a later date. The investor saves money and deposits premiums during the “savings” phase, while interest accrues on the account, and then later (the “income” phase), the investor has the option of “Annuitizing,” that is, receiving periodic payments at a set interest rate.

The rate of return during the income phase is typically guaranteed for a short period of time, often the first year, and is then subject to a minimum guarantee (usually at a much lower rate) over the term of the annuity. Annuities also often come with surrender charges for early withdrawal; for example, if the investor withdraws more than 10 percent of the account value at once, then the investor may have to pay a fee of around 7 to 15 percent, which typically declines over time.

Deferred annuity scams

Insurance agents selling annuities are notorious for creating high-pressure sales situations intended to prey on unwary investors and conceal hidden costs and fees that ultimately reduce the rate of return. Annuities may carry onerous surrender charges that are not properly disclosed at the outset of the transaction. Agents promote signing bonuses and “today-only” deals to create incentives to purchase, and often these bonuses fail to actually manifest once the money for the annuity is actually withdrawn. Agents will pitch overly convoluted contracts that hide the actual terms and that may be entirely inappropriate for the financial situation of the investor. They may claim that there are “no possible losses” even though annuity performance is tied to the overall market, and thus include inherent risk.

Agents may also invent official-sounding titles or certifications for themselves to make a deal seem more legitimate. Agents may call themselves a “trust advisor,” “senior estate planner,” or “Certified Senior Adult Consultant.” It is vital that you check whether an agent is properly licensed before signing any final paperwork for an annuity. A qualified insurance lawyer can help you make sure your annuity is legitimate, that your money is going to the right place, and that you are not at risk for an annuity scam.