Are Annuities a Scam? Annuity Scams & Annuity Fraud To Watch Out For

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There are many benefits to annuities, such as providing a guaranteed income during retirement. They can help retirees feel financially secure while going into their golden years and ensure you can live life the way you want to. Unfortunately, as with other financial products, scammers use annuities to make a dollar. Though there are regulations surrounding annuities, scams can still occur. In this article, we’re going to uncover some of the various examples of annuity fraud so you can protect yourself. 

Seniors and Annuity Fraud 

Annuity fraud can happen to anyone at any age, but seniors are particularly susceptible to be targeted. Because of this, they should take care to adopt the appropriate precautions. 

Scammers are more likely to become the target of financial fraud because they might have significant retirement savings and fraudsters will be attracted to the funds they have accumulated. They might also be worried about their retirement plan and scammers can take advantage of that worry by offering fake solutions. Lastly, as we age, cognitive decline accelerates and seniors are more susceptible to scammers taking advantage of them in a compromised mental state. 

Types of Annuity Scams

Many state governments have regulations for selling annuities and they can help protect consumers but annuity fraud still occurs and criminals can find their way around scams. Annuity swindling will likely be the result of either unethical behavior that isn’t necessarily illegal or outright illegal actions that warrant recourse. 

When a consumer receives bad advice about annuities, it can be difficult to prove. However, annuity agents can break the law to steal consumers’ money. In these cases, the consumer can seek legal recourse. 

Selling Unsuitable Products for Commissions

Most annuity agents receive commission for annuity sales, incentivizing your agent to sell you an annuity. This isn’t a problem by itself but it might lead them to sell you an annuity when it’s not right for you. Annuity agents might be motivated by their own profits rather than the consumer’s best financial interest. This might lead them to suggest a product they know isn’t a good fit for your financial situation. 

You avoid this, you should be careful about the company you choose to receive advice from. When you check the company’s reviews, you should be able to gather a complete understanding of whether they have your interests in mind. Insurers with non-commissioned agents will explain financial products you’re interested in detail so you feel comfortable with your decision. 

Using High Pressure Sales Tactics 

Sales agents might try to pressure you into buying an annuity without you feeling sure about it and your financial future. They might tempt you with time restrictions, such as a “today only” emphasis. You can avoid this potential pitfall by recognizing pressure and resisting it. You might consider buying an annuity directly online where you will have the time to weigh potential options. No respectable annuity agent will make you feel as though you don’t have time to make a well-thought out and confident decision. 

Intentionally Misrepresenting the Product 

Some agents purposefully sell an annuity contract that you won’t be able to understand. They might intentionally misrepresent the product you’re thinking about buying so they can earn a commission. You can avoid these scams by choosing a company that’s transparent about their products and how they sell them. You can ask what happens if you need to access your money before the end of the contract term. You can also ask about the fees so they are upfront about how you plan to pay for them. Lastly, you can choose a company that doesn’t pay salespeople commission. 

Promises of Never Losing Money

Annuities come with perks and drawbacks and reputable companies will let you see both sides of the coin. If an annuity agent tells you you have no chance of losing money on an annuity, you should investigate further. Though there are annuities that secure your principal, many annuities come with potential drawbacks attached to them and you need to be conscious of all the potential aspects of an annuity before making a final decision.

For example, variable annuities and indexed annuities might come with the potential to lose some of your principal depending on the various parameters. Their returns are also based on market performance, unlike fixed annuities. This means you can potentially lose money and annuity agents should be upfront with you about the risks involved in your annuity.  You can avoid this type of scam by learning about the potential drawbacks of annuities. If you’re not sure, you can always check with an annuity advisor to ensure you fully understand your options. 

Omitting Mention of Surrender Charges

Surrender charges occur when you withdraw from your annuity before an agreed-upon date. Most insurers charge surrender charges if you move your money during the surrender charge period. Surrender charges and expected annuity fees are a common thing when choosing an annuity. However, some annuity agents omit these key pieces of information and encourage you to buy the annuity without any sort of context. You can avoid this scam by asking about annuity fees and charges upfront. If the agent doesn’t disclose the fees, you should know something is wrong about their presentation. 

Fraudulent Contracts 

This is an illegal scam that deals with a fraudulent annuity contract that lets the agent inherit the annuity when you pass away instead of your beneficiaries. Always read the fine print of your contract and make sure everything checks out, especially if you opt for a death benefit. 

A Fake Insurance Company

Some scammers can set up a fake insurance company and persuade you to buy annuities from them even though their company doesn’t exist. After you pay for the annuity, they will evaporate into the ether and you will never see them again. 

Bottom Line 

When it comes to annuities, you should never leave anything to chance. Ensure you consult the right authorities and agents and do your homework before making a final decision. You should understand the various parameters of your annuity and shouldn’t be confused about the fine print.