Annuities sales methods expert witnesses may opine on tax deferred annuities, equity indexed annuities, and more. In VARIABLE ANNUITIES: A PRIMER FOR CLAIMANTS’ COUNSEL, John Duval Associates writes on annuities sales practices:
The most eyebrow-raising feature to appear lately is the “living” performance guarantee or “guaranteed minimum income benefit.” Different carriers have different names for it, but the feature generally is described as providing a 6% per year minimum performance guarantee, regardless of actual performance. Customers are told they will receive that 6%, even if the account loses money, but can receive the actual value if that proves to be higher than the 6% guarantee. Talk about seductive–-this guarantee seems like a no-lose proposition. Unfortunately, not every broker makes clear that the feature requires the contract to be kept in force for a long time, usually 10 years, before it can be utilized. Furthermore, the client must annuitize the contract in order to get the guarantee. In other words, the customer must irrevocably transfer the principal to the carrier in exchange for payments (factored at a very low interest rate) during a selected optional period such as life or 10 years certain. Of course, if the client dies before the value of the funds has been paid out, the insurance carrier wins the mathematics game. And this feature adds an extra cost above the regular M&E fees, putting the total contract fees at around 3%, a staggering expense.
Read more: John Duval Associates.