Annuities
Annuities are insurance products in which the client makes an investment in the annuity and the annuity then makes payments to the investor either on a specific date or on a series of dates. The money in an annuity can be paid out as a lump sum payment, annually, quarterly or even monthly. An investor can choose to have either a fixed annuity, which has a guaranteed payout, or a variable annuity, in which the payout is determined by the annuity's underlying investments.
Annuities can also be immediate, meaning they begin paying out immediately, or deferred, in which the pay out begins at a future date.
However, deferred annuities often carry very high expenses, including fees for cashing in the annuity too quickly. Some annuities can have surrender charges of between seven percent and 20 percent for pulling money out within the first year. Annuities are considered retirement vehicles, so there can be expensive tax consequences to cashing in an annuity before the investor is 59 ½ years old. Furthermore, deferred annuities can be unsuitable for seniors because they often have a long term attached to them—sometimes between 15 and 20 years that the money is locked in before it is paid out.
Variable annuities can also have high annual fees, including insurance charges and investment management fees.
Annuity Sales Practices
Annuities can carry high commissions for brokers who sell them, increasing the incentive for financial advisors to push annuities, even when the annuity is an unsuitable investment for the client. Some practices that have been investigated regarding the sale of annuities include:
- Offering "immediate" bonuses for purchasing the annuity but not telling the investor that the bonus is not payable for five years or more.
- Using scare tactics to convince seniors to purchase annuities. Such scare tactics include exaggerating the risk of seniors losing their assets to creditors or lawsuits.
- Downplaying or hiding the fees and other disadvantages of annuities.
Although annuities can be a suitable investment for some investors, there are investors who say they were not told about all the fees and other risks associated with their annuities and they believe the annuity was not a suitable investment for them. Some of those investors have filed lawsuits against the companies that sold them the annuities.
Columbus, OH: Approximately 8,000 senior citizens in Ohio were reportedly bilked out of their money through illegal annuity plans. [ 
Pittsburgh, PA: One the surface, they may seem like good investments: annuities can provide a stream of income for people in their retirement years. However, there are often a number of factors that complicate annuity plans, making them unsuitable for certain investors. Selling annuities to those investors could constitute annuity fraud. [ 
