Annuity 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.
An annuity is a financial product sold by financial institutions that accumulates funds from an individual until a certain point in time, at which point the individual is then paid a steady stream of payments at a later point in time. Annuities were intended to be reliable sources of cash flow for individuals in their retirement years and to alleviate fears of outliving one’s retirement assets. There are various types of annuities with various features.
Life Insurance is protection against financial loss that would result from premature death. The named beneficiary of the policy receives the proceeds upon death of the insured and is safeguarded from the financial impact of the insured’s death. Wall Street has taken the useful concept and created life insurance products that add an investment component.Why Annuities and Insurance Products are not for all Investors
These investments are frequently intended to be held for many years and can contain difficult to understand terms, restrictions and surrender charges related to these financial products. Many financial advisors favor these products because of the substantial, front-end load 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 address 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 purchase of these products.Investors Should be Cautious When Considering Annuities and Life Insurance Products
An investor should carefully consider who issues the insurance contract because that would be the company that guarantees the investor’s premium payments. An investor can lose their investment, above the sums guaranteed by state insurance funds, if the insurance company fails or goes out of business.
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 is 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.
Additionally, some individuals who sell annuities and insurance products will engage in the practice known as Variable Annuity Switching, where a broker or insurance agent will purchase an annuity and then surrender that annuity to purchase another one, incurring high fees, charges and commissions in the process.Silver Law Group is Experienced in Pursuing Claims Concerning Annuities and Insurance Products
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:
- Elder Financial Fraud;
- Variable Annuity Switching;
- Unsuitable Sale of Fixed Annuities and Equity-Indexed Annuities;
- Life Insurance or Variable Annuity Twisting and Replacement;
- Abusive Variable Universal Life Contracts;
- Personal Retirement Plans Funded with Life Insurance; and
- Stranger-Owned Life Insurance (STOLI).
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.