Is Someone Telling You to Surrender Your Annuity… and Buy a Different One?

This article made me realize I need to make consumers aware of a potential financial hazard. Last week a press release came out describing how two Registered Investment Advisors in Illinois were penalized for recommending the replacement of existing annuity contracts. The transactions made these advisors a substantial amount of commission and were later found to be completely unsuitable for the consumers involved. Read the release here.
In the past couple of years, I’ve taken dozens of calls from people asking if they should replace a current contract based on the advice of another salesman. In every case, the answer has been NO! Aside from generating a fat paycheck for the new agent, there is usually little to no net benefit to anyone involved. Termination of an existing contract not only costs money in surrender penalties but also results in a loss of benefits from the former contract.
There is a lot of information out on the internet and a lot of people trying to earn your business. I know that many of you get informational emails from some of these sources just like I do. I want to know what you hear and what other advisors have to say. Some of the information is troubling to say the least. A few people out there actually advertise for annuity replacement. Be extremely cautious when contact with an advisor is made this way! In fact, if that’s how someone needs to attract clients, do the guy a favor and take your business elsewhere. He needs to find another line of work.
Many of the products sold today have a long list of benefits. Each available product has a specific strength that is meant to be used for a specific purpose. Some offer excellent guaranteed income, growth or death benefit guarantees but rarely, if ever, does one product do it all. Surrendering a contract for a greater benefit in one area will cause you to give up benefits in other areas. Besides, guarantees from product to product are usually close enough that it’s not worth the hassle.
If you are the victim of unethical sales practice you may have recourse but no one enters into a contract looking for that kind of hassle. The purchase of an annuity is supposed to relieve stress, not create it. Do your homework before you buy any financial product and look for a competitive analysis of any strategy. The more you know about your contract the better you’ll be able to tell the difference between a true advisor and a snake-oil salesman.
If you want some hard-hitting questions to ask any advisor who may or may not be acting in your best interests send me an email. I’d be happy to offer up a list of questions that can only be answered by the real experts out there.
You and your money deserve the most ethical approach.
Have a great week!
Bryan J. Anderson

[email protected]

Annuity Surrender Schedule


We think the Annuity Surrender Schedule is the single most important component of an Annuity, and want you to know why. Pay close attention.

The annuity surrender schedule tells you how much of your money you can have at any given time.  Why do we think this is important?

Companies that offer shorter surrender schedules indicate a respect for your capital. This fundamental integrity flows through to the myriad other contractual terms we look at, and indicate the overall quality of the people at the issuing company.

We like to work with good people and companies.  Companies that are up front and honest don’t try and lock up customers unnecessarily.  They don’t tempt agents to steer their clients into inappropriate products with high fees.  Many good terms and conditions stem from something as simple as a surrender schedule.

Why have surrender schedules at all?

Most annuities have no upfront fee to customers who purchase annuities.  But in selling an annuity contract, the insurance company incurs costs, so they attach a contingent deferred sales charge, or surrender charge, to make sure the company gets its money back in case the customer cancels the contract early.

The surrender charge is a direct indicator of the fees associated with placement (sale) of the annuity.  The major costs to the company are one-time bonus rates for the customer, and agent commissions.  Minor expenses include administrative costs linked to shuffling papers and managing money within the company.

You can’t get away from administrative expenses but you do need to be careful that you are not on the hook for a 15 years surrender schedule while the agent made off with a big payday.

As a corollary to this topic, there is another very important detail often left out.  We call this the “Negative Inheritance.”

In the unfortunate event you pass away during the period the surrender schedule of your annuity, your heirs may be liable for that surrender cost.  Many high quality annuity contracts will waive the surrender charge to your beneficiaries in this unfortunate event.

Of course, as you do your homework, you will find many companies that do NOT waive this surrender penalty upon your death, leaving your heirs with a large penalty and thus the Negative Inheritance.

It’s pretty obvious that you’ll want to work with only the best companies- like the surrender schedule, this waiver of surrender charge upon death is a key indicator of the integrity of the offering company, and adds an important item to the list of reasons why certain companies do and do not deserve your business.

Action Items:

Seek annuities with the lowest surrender charges and the shortest surrender schedule.  Seven years is a good ballpark.
These annuities will have the lowest agent commissions, so most likely your agent won’t tell you about these products.
Whenever possible, make sure the surrender charge is waived to your heirs.