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Annuities and Insurance Products

Annuities and insurance products have become popular investment vehicles including, permanent life insurance policies and a variety of different annuities including fixed annuities, variable annuities and equity-indexed annuities. These investments are frequently intended to be held for many years and can be complicated to understand the terms, restrictions and surrender charges related to these financial products. Many financial advisors favor these products because of the substantial, front-end loaded commissions associated with the financial products. Also, many insurance agents hold themselves out as financial advisors, but do not hold the required securities license(s) and are only permitted to sell insurance products. Life insurance companies market annuity and life insurance contracts through networks of insurance agents licensed in the states where the products are sold. Some insurance agents are “captive” and can only sell the annuity and insurance products of the company they represent. Other salespersons are “brokers” and can sell annuity and insurance products of any insurance company. Many insurance agents claim to offer financial advice designed to solve client needs such as retirement income or protection from premature death. Many state insurance regulators consider insurance agents as fiduciaries who provide financial advice which requires agents to act in good faith, to refrain from misrepresentations and to disclose the relevant facts related to the purchased of these products.

An investor should carefully consider who issues the insurance contract because the company guarantees the investor’s premium payments. An investor can lose their investment losses, above the sums guaranteed by state insurance funds, if the insurance company fails or goes out of business. Funds invested in fixed annuities and life insurance contracts issued and managed by life insurance companies are held in either the general account of the insurer or in separate accounts which are segregated from the insurance company’s general account. Fixed insurance products are invested the general account of an insurance company and are subject to the claims of insurance company creditors which is the main reason an insurer’s credit rating is important when investing in fixed annuity and life insurance products. State insurance funds provide for guarantees to contract holders of failed insurance companies, subject to certain limitations. Variable annuity and life insurance products are invested in accounts segregated or separated from the general account funds and are not subject to the claims of any creditors of the issuing insurance company. Variable annuities and variable life insurance products can only be sold by advisors who hold an insurance license and a securities license with the Financial Industry Regulatory Authority (FINRA), known as dually licensed agents. This because separate accounts managed by an insurance company are invested in sub accounts which are similar to mutual funds and are considered investment products. In some instance, these dually-licensed agents are compelled to sell proprietary annuity and life insurance products (i.e., annuity and insurance products created or sponsored by the insurance company itself) to meet certain quotas. Furthermore, because the commission paid to the agent for the sale of these “home grown” products are typically higher, the question arises as to whether conflicts of interest exist, because the agent failed to consider its clients’ best interests instead of their own financial interests.



In recent years, product innovations for the use of annuity and life insurance products has led to greater product complexity, more complete consumer disclosure requirements and an increased need for supervision of the sales process. In recognition of the proliferation of annuity and life insurance products, state insurance and securities industry regulators have emphasized the need for greater oversight including the following areas:

Our team of lawyers can help you determine whether you suffered economic losses from investments in annuity and life insurance products that are the result of violations of state insurance or securities industry rules and regulations. If an investor suffers losses in annuity and life insurance products as a result of violations of state insurance or securities industry rules and regulations they may be able recover their losses through a civil court or FINRA arbitration claim.


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