10% Penalty on Annuity

[VolAgent]

https://www.irs.gov/pub/irs-pdf/p575.pdf

Page 32. It appears the tax only applies to the portion that is considered income, it does not apply to basis. Of course, since annuities are LIFO when taking distributions, the tax will always be on the growth until withdrawn to basis.

 

[Julieolo]

If I were in your position, I would first give the Insurance Carrier a chance to correct the situation.

Ok, I just contacted them and they have asked me to send them a letterof complaint.

Do you have the Policy (contract) they gave you? Usually, they give you a bound document with the annuity contract and provisions within it

What I have is a copy of the application but I believe some of it is missing. There are 4 pages but at the top I can see that I have page 4, 7, 14, 15. Some of it is a little blurry as he made copies on a copy machine. He also gave me an Annuity Information packet but this is a vague description and not everything in it applies to the contract.

That would be very helpful for you to have. Find the section asking about your financial info and financial goals. Are those questions correct? If not, the Insurance Company needs to know that.

I do not remember this part of the process and I don't have anything resembling this. Is this something I can get from them if it does exist?

What was the discussion? What did you come to the agent asking for and what did he tell you?

When I meet with him, what I told him I wanted was something that I could invest in for 3 years so that if the interests rates went up I could reinvest. I remember being confused because I kept seeing one of the pages had an image that looked something like this...

1 | 2 | 3 | 4 | 5 | 6 | 7 | 8+
9% | 8% | 7% | 6% and so on

So I kept asking him, I can get the money back in 3 years correct? And he just kept saying yes. Turns out this is correct if I want to pay 7% penalties. When I asked what did it mean by 7 years, he said that I could keep it in there for 7 years, or I could keep it in there for 99 years if I wanted.

Now I take full responsibility for this mistake. I did not under stand, and I should have received a second opinion, I should have taken the policy home and read it over until I understood it. As much as it hurts, this is my fault, and I feel completely stupid and embarrassed by it. 3 years is a long time. 7 years seems like a life time.

But there is no doubt that if he had told me that I would have to pay a 10% penalty on any money I received I would have said no way.

And are we talking about a large amount here? That always runs through my mind too...lol.

200,000.00 is the amount.

Also, if you shared the name of the Insurance Carrier it would be safe to do so. It is probably a good idea not to share the name of the financial advisors firm. The Insurance Carrier wouldnt be an issue, and we could tell you what kind of reputation that carrier has.

AIG is the company. I don't think they get much bigger then these guys right?

 

[Julieolo]

The OP could probably get out of it if they complained loud enough. (assuming facts presented are correct)

My concern is that it is his word against mine. He could say he told me. I feel like the only thing I have going for me is that it makes no sense for me to be in this contract and why would anyone want to have a policy that makes them pay penalty fees.

 

[DHK]

There are SOME annuity contracts where, if you surrender the ENTIRE contract (not a portion of it or a withdrawal), you are guaranteed to get EVERYTHING back (minus any previous withdrawals) and no surrender charge applies.

It's called a "Return of Premium" Rider or a "Principal Guarantee Feature". I know that American National has this on some of their fixed annuities. I couldn't tell you about AIG though.

That would be the ONLY way I could see a contract being remotely "suitable" for a 3-year time-frame and having a 9+ year surrender charge schedule.

 

[DHK]

why would anyone want to have a policy that makes them pay penalty fees.

There are advantages... but those advantages doesn't seem to be anywhere close to meeting your goals and objectives.

Annuities are best for what they WILL do - guarantee a lifetime stream of income, safety of principal, and earn better than bank interest rates. As long as the time frame is a fit, they can be great.

But, based on your posts, it SEEMS like he just "slammed" you into this contract without listening to anything you said or even acknowledging your time horizon.


If I were to have made that recommendation, I would've highlighted very clearly how you are supposed to be able to access your money after your stated time horizon - possibly with the return of principal rider as I alluded to in my last post. I would've had to make that VERY clear, otherwise, it just doesn't look like a fit for your situation.

 

[Julieolo]

It's called a "Return of Premium" Rider or a "Principal Guarantee Feature". I know that American National has this on some of their fixed annuities. I couldn't tell you about AIG though.

I see it in the application. I initialed the box that says "I do not elect the Optional Return of Premium Guarantee. The premium guarantee, if chosen, provides that your value at cancellation will be equal to or greater than your single premium paid, less any previous withdrawals of interest or premium."

 

[DHK]

OUCH!

Well, that could come back to bite HIM as what we would call an "error or omission". This could still be rectified as simply signing the wrong line - in error.

 

[Julieolo]

Well, that could come back to bite HIM as what we would call an "error or omission". This could still be rectified as simply signing the wrong line - in error.

I don't understand. I feel like it makes me look bad for initialing on the line next to the box he checked.

 

[DHK]

Just because you initial a box, does not mean that you fully understood what you were told to do and why. That's why it would not be your fault.


I've read about annuity cases where a negligent agents were selling fixed indexed annuities (where interest was credited according to the movement in the stock market but subject to a maximum cap)... and this agent out of Missouri was putting the money allocated to a fixed interest allocation only - no indexing - which was the point of buying these contracts! And he did this dozens of times... at the detriment of his clients. I actually read the entire complaint file... and it was rather damning to him.

I know how these documents are done and how agents/advisors ask clients to sign: "initial here", "sign here", etc. Now, *I* explain every signature and initial and why it's required... but I wouldn't assume that of your "representative".

 

[DHK]

Did you see the video where Ilya Lerma talked about an error being portrayed by a prosecuting attorney as a betrayal? This whole thing feels that way - according to the way this thread is shaping up.

If you knew what that line meant... would you have initialed it? Probably not. Therefore, how could you be held responsible for signing something you didn't understand? You only signed/initialed because of the implicit trust you felt (at the time) of the recommendation.