As our readers and customer know, we love annuities and do our best to educate you so that when you buy from us, you’re doing so with full knowledge of what these powerful safe money contracts can accomplish.
So it’s a real slap in the face to learn of dishonest and deceptive annuity sales people muddying the waters. It just makes life harder for everyone.
In the “I can’t believe I just read that department,” I wanted to share with you a recent dialogue we had with a client who seems to have had a close brush with disaster.
Here’s the original email from our client-
“I was talking to an extended family member over the weekend at a party about annuities. He told me about a fixed indexed annuity at a place called XXXXXXXX.
It pays a 6% bonus on your investment for the first year and is currently paying a 1.2% fixed rate on top of that. So for the first year you are getting 7.2%.
He put in 285,000.00 earlier this year from his IRA retirement monies. He said he plans to keep it for only a year.
When he surrenders it after the first year he will have to pay a 10% penalty surrender fee only on the money he made. So he will be making 7.2% for a total of 20,520.00. The surrender fee will be 2,052.00.
He will be making a net of 18,468.00 and walking away with 303,468.00. If it is still available he plans to do another one after cashing in this one.
This sounds too good to be true. Is he missing something. Do you know if this is correct and if so can you get this for me?
Wow, there are just so many lies this poor ‘extend family member’ annuity buyer fell for, it’s just shocking. Bryan’s quick reply is below, and I’ll detail a few additional points afterwards.
Unfortunately, your relative’s plans for that annuity won’t even come close to working out. The surrender fee is applied against the entire account and the bonus has a vesting schedule so he won’t see much if any of that either.
If he really plans to walk away in one year then he stands to lose a big chunk of money.
It’s a shame to see annuities sold like that since the strategy you mentioned runs completely contrary to the purpose and structure of most annuities.
I have you rescheduled for Wednesday so please let me know if anything changes.
This little exchange reveals so much about the annuity space. Investors and retirees are desperately seeking yield and safety, yet even when confronted with a self-professed ‘too good to be true’ scenario, they still want to buy it.
Why is it that people always reach for the flame, but are constantly surprised when they get burned?
There’s no way an insurance carrier would offer a bonus on a new contract, and not hedge their risk with a long surrender schedule and a vesting schedule of that bonus. It just doesn’t happen that way.
So why a dishonest salesman would promote such a scheme is beyond me- encouraging people to go into multi-year long term contracts with the express purpose of surrendering after 1 year is just not just crazy, but it’s dishonest to boot.
If the agent led this client into this trap, there are legal repercussions, loss of license, and fines that can be assessed if the agent is reported to state insurance regulators.
That said, if the buyer jumped into this on their own recognizance and dreamt up their own harebrained scheme, then they are in for a rude awakening when they realize what they actually signed up for is a long term, safe money contract. Let’s hope they don’t have IRA RMD requirements to boot.
But who knows – maybe having this money tied up for a few years will help the buyer ‘cool off’ and protect them from themselves…..
It if sounds too good to be true, it likely is. Learn the facts about how annuities work, and learn the rates and yields you can expect. That way, you can spot a scam and steer the other way.
Annuities provide safety, moderate growth, and income benefits. Knowing this about annuities, our clients first define what they need, and then they like to work with us as we find the best annuity for that specific job. We leave out the contracts with lots of bells and whistles, and we certainly don’t need any of the scam tactics this poor person fell for. That’s the Annuity Straight Talk way.
Looking forward to your call,
Nathaniel M. Pulsifer and Bryan J Anderson
Annuity Straight Talk
800 438 5121