- Thread starter
- #81
Yeah, I'm thinking maybe the pages in between did not have any thing filled out on them so he left them out.
10% Penalty on Annuity
- Thread starter Julieolo
- Start date
Yeah, I'm thinking maybe the pages in between did not have any thing filled out on them so he left them out.
- 15,041
Whether he did or he didn't sign the receipt, he has the policy and has publicly admitted as much. Unless the state requires the delivery receipt, then he can't argue he didn't receive it. And if the state did require it, then the company would have pursued it until they received it or rescinded the contract to comply with state law.
Now, if it was altered is a different story. Although I strongly doubt it was. The advisor strikes me as possibly stupid, but not necessarily criminal.
- 10,704
An Insurance Policy is a Legal Contract.
The Application is part of that Contract.
If you really read the policy, it will at times make reference to parts of the Application that you answered questions in. And this is why they include part or all of the application in the Policy when they send it to you.
You can use the terms Policy/Contract/Legal Agreement all interchangeably when talking about an Insurance Policy.
Some states require the signing of a Delivery Receipt. Others consider you taking acceptance of the Policy/Contract and not exercising your right to cancel during the "30-day free look" period, as you accepting the terms of the Policy/Contract.
So legally, it sounds like you have taken acceptance of the Policy/Contract. But that does not mean that AIG will not try to fix the issue if you were misled during the sales process.
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fyi
I have multiple freinds who are CPAs. All great people. None of them know jack about insurance, especially insurance law.
What they can advise you on is the taxation aspect of the product. But the IRS code is very clear on that subject.
CPAs are great at taxes.... but generally speaking, terrible with insurance and investments. I cant tell you how many times Ive heard incorrect statements from CPAs about how annuity and insurance products work.
But in all fairness, their training does not really cover insurance products. Only how certain products are taxed, and even then, the actual CPA exam does not go in real in depth with insurance product taxation. And it barely skims the surface when it comes to how the products work, their features, and how they can benefit consumers.
What Im trying to say is, I think a CPA would be a few hundred bucks down the drain. Unless you have a normal CPA who does your taxes for you and will cut you a bit of a break on their time.
Send the letter to AIG, give them a chance to make things right.
- 10,704
I would guess its just the required pages they include. Im pretty sure that each State DOI dictates which pages of the app are required to include in the Policy and which are not. It could just be the signature pages, or maybe certain identification/ownership/financial info. Etc.
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Julieolo, the agent does not control what is included in the Policy. That is AIG. There is a legal reason it is just those pages of the app.
It could be certain things have to be included, or it could even be certain things cant be included for privacy reasons or something. Its state specific and it really doesnt matter, AIG knows each states regs and would abide by them. Again, the agent has no control over whats printed or included in the bound Policy/Contract.
- Thread starter
- #85
Do you think he can answer the question on whether or not I have to pay 10% penalties on the principle?
I am beginning to feel like the only way I can find out is if I take 15% each month as aloud and wait until the taxes are due to find out for sure.
Right now the penalties are in the $100s. I don't want to pay $1000s.
At this point with all the information here, I do believe the ins. agent did not know about the penalties or he knew but did not care to mention it because taxes are not his business. Either way it is my problem now. I guess I can consider myself lucky that I did not put everything I had into this policy.
I will go ahead and follow through with a complaint letter to AIG but to be honest, I really don't think anything will come of it.
I have summed up my problem as thus...
I thought I could get my money back in 3 years so that I could hopefully invest in something with decent interest rates. Not so but, I can start recovering it after the 3 years at which point I will be of age and will not have to pay the penalties. I have not looked but interest rates are probably still low and may still be low in 1 1/2 years from now anyway.
My money (I think) is safe where it is and they can not take it away. My only fear is...what else do I not know that will come back to bite me later.
I have learned a lesson and even though it is to late for me, my kids have learned something and when the money gets passed to them maybe they will not make the same mistakes I have made.
- 10,704
They could certainly help with the tax question, but you only pay taxes on the gains. The exact wording in the IRS code of law is:
"Tax applies to the part of the Distribution that you must include in Gross Income. It doesnt apply to any part of the distribution that is tax-free, such as amounts that represent a return of your cost.."
Your deposit is "your cost", and the only part of Non-Qualified Annuity Withdrawals that are included in Gross Income are Gains.
So it is very clear and easy to understand. Read page 32, the first paragraph of the section "Tax on Early Distributions". You are smart enough to read it and understand it yourself. Its very clear.
It is extremely rare that a Non-Qualified Annuity is sold to someone younger that 59 1/2. So most agents and even carriers do not deal with this exact situation often, if ever.
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It was 110% the agent's responsibility to inform you of the Tax Penalty. Just because you took acceptance of the Policy does not negate his negligence!!
And AG knows and understands that. The fact this guy got into trouble once already for unsuitable annuity sales is something else you need to tell AG in the letter.
It was also his responsibility to fully inform you of when and how you are able to get your money back. He signed a statement saying he "fully explained the features of the policy" to you.... its part of the "agent statement" of the application.
Send the letter. Give AG a chance to make this right.
NPCOACH
Expert
I have followed this thread for a while and am surprised by some of the stuff I am reading from all parties involved. I feel compelled to add my .02 cents, which is probably all this long winded response is worth.
I am an agent in California and have specialized in annuities for the last 20 years. Annuity sales to people under age 59.5 are not rare. Nationally, the average age of an annuity buyer is about age 63. Restrictions and penalties for people under age 59.5 makes them unsuitable for some, but not all or even most people under age 59.5.
In California, annuity contracts will include the application and possibly certain disclosure forms (such as schedule of surrender charges). Most annuity "applications" are only 2 or 3 pages. The total paperwork package may have over 50 pages, most of which will not be part of the policy.
The suitability form that was required in the application will have questions about total net worth, purpose of the annuity, investment experience, total liquid assets, and the time horizon for utilizing funds amongst other things. Without that info, it is hard to properly evaluate your complaint or the agent's performance. A $200,000 annuity to a person with $750,000 liquid might be suitable, even at age 58. The same sale to a person with $250,000 liquid would probably not be considered suitable.
Total assets, income from employment and/or other investments and your overall level of experience as an investor all play a part in the equation.
If this $200,000 represents a high percentage of your liquid assets, I would be surprised that AIG would issue the contract. I would ask AIG for all submitted paperwork, including any cover letter or explanation of the sale submitted by the agent. Hopefully the agent didn't have you sign a bunch of blank pages and filled them in info without asking you. I have seen that happen.
Most life insurance agents and stock brokers write very few annuities. Sounds like that may have been the case with your agent. Good insurance companies will take care of you if the agent misrepresented the product. AIG is a good company. However for every shady or uninformed agent out there, there are probably 5 clients that misrepresent the sales process to get out of penalties that they were aware of.
Good luck. Hope all works out for you.
I am an agent in California and have specialized in annuities for the last 20 years. Annuity sales to people under age 59.5 are not rare. Nationally, the average age of an annuity buyer is about age 63. Restrictions and penalties for people under age 59.5 makes them unsuitable for some, but not all or even most people under age 59.5.
In California, annuity contracts will include the application and possibly certain disclosure forms (such as schedule of surrender charges). Most annuity "applications" are only 2 or 3 pages. The total paperwork package may have over 50 pages, most of which will not be part of the policy.
The suitability form that was required in the application will have questions about total net worth, purpose of the annuity, investment experience, total liquid assets, and the time horizon for utilizing funds amongst other things. Without that info, it is hard to properly evaluate your complaint or the agent's performance. A $200,000 annuity to a person with $750,000 liquid might be suitable, even at age 58. The same sale to a person with $250,000 liquid would probably not be considered suitable.
Total assets, income from employment and/or other investments and your overall level of experience as an investor all play a part in the equation.
If this $200,000 represents a high percentage of your liquid assets, I would be surprised that AIG would issue the contract. I would ask AIG for all submitted paperwork, including any cover letter or explanation of the sale submitted by the agent. Hopefully the agent didn't have you sign a bunch of blank pages and filled them in info without asking you. I have seen that happen.
Most life insurance agents and stock brokers write very few annuities. Sounds like that may have been the case with your agent. Good insurance companies will take care of you if the agent misrepresented the product. AIG is a good company. However for every shady or uninformed agent out there, there are probably 5 clients that misrepresent the sales process to get out of penalties that they were aware of.
Good luck. Hope all works out for you.
- 10,704
I said that NON-QUALIFIED Annuity sales to people under 59.5 are fairly rare. The "non-qualified" part is a very big distinction. Qualified Annuity sales to people under that age happen on a very regular basis.
And I will go a step further, NQ Annuity sales to people under 59.5 who plan to take income before that age, are even more rare. Mainly because there are often more suitable products. (talking deferred annuities obviously)
The second paragraph is technically correct. But whats required to be included in the policy is still state specific.
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NPCOACH
Expert
I read what you wrote. It is not correct. Annuity sales to people under 59.5, qualified or non qualified, are not fairly rare.
Non qualified annuities to people under 59.5 that plan on taking income from them prior to turning 59.5 ARE rare. Normally, barring highly unusual circumstances (such as a 72(q) situation) they would be considered extremely unsuitable.
I am not aware of any company that would issue an annuity under those circumstances.
This is why I am confident we are not getting the full story. In the circumstances described by this consumer, I find it hard to believe AIG would have issued this annuity. I would not be surprised to find that the suitability form does not accurately describe the client's situation.
A detailed written explanation would be required by most companies for them to knowingly accept money from a client that is going to make early withdrawals that would be subject to IRS penalties and surrender charges. I can't fathom what explanation would make that scenario make sense to the insurance company.
Either way, something is fishy with this story. Everyone is dancing around the fact that clients lie all the time about agents misrepresenting stuff if the allegations are required to get money. Not saying that is the case here, but it is not uncommon.
Non qualified annuities to people under 59.5 that plan on taking income from them prior to turning 59.5 ARE rare. Normally, barring highly unusual circumstances (such as a 72(q) situation) they would be considered extremely unsuitable.
I am not aware of any company that would issue an annuity under those circumstances.
This is why I am confident we are not getting the full story. In the circumstances described by this consumer, I find it hard to believe AIG would have issued this annuity. I would not be surprised to find that the suitability form does not accurately describe the client's situation.
A detailed written explanation would be required by most companies for them to knowingly accept money from a client that is going to make early withdrawals that would be subject to IRS penalties and surrender charges. I can't fathom what explanation would make that scenario make sense to the insurance company.
Either way, something is fishy with this story. Everyone is dancing around the fact that clients lie all the time about agents misrepresenting stuff if the allegations are required to get money. Not saying that is the case here, but it is not uncommon.
- 11,457
Something IS fishy with the story, you're right. Either the suitability form does not accurately describe the client's situation (agent fault) or the consumer is lying. In fact, that's the only conclusion you can make - either the agent screwed up, or the consumer is lying. (Duh)
The problem is: Which is it? That depends on the documentation on file when the annuity was sold, agent notes, and the suitability forms, as well as the withdrawal activity from the policy, etc. The documentation will determine what happened and if the consumer complaint has any merit.
Could you imagine selling a non-qualified annuity, NOT in conformity with 72(q), having a withdrawal happen within the first 6 months of owning that annuity, and the agent knew about it in advance?
Now, is it POSSIBLE that the consumer's needs CHANGED after they were sold the NQ annuity and just want to access their money without penalty? That is definitely possible. Perhaps income wasn't part of the conversation when the annuity was first sold and now situations have changed where it's a bigger issue now. After all, the annuity tax penalty only showed 4 MONTHS of withdrawals... and the policy was at least a year old (I think).
I find it almost unfathomable that someone could spend DECADES in this business and purposefully not know "the IRS side" of things in regards to the products they sell. I do hope that's fabricated. If not, that's even scarier.
The problem is: Which is it? That depends on the documentation on file when the annuity was sold, agent notes, and the suitability forms, as well as the withdrawal activity from the policy, etc. The documentation will determine what happened and if the consumer complaint has any merit.
Could you imagine selling a non-qualified annuity, NOT in conformity with 72(q), having a withdrawal happen within the first 6 months of owning that annuity, and the agent knew about it in advance?
Now, is it POSSIBLE that the consumer's needs CHANGED after they were sold the NQ annuity and just want to access their money without penalty? That is definitely possible. Perhaps income wasn't part of the conversation when the annuity was first sold and now situations have changed where it's a bigger issue now. After all, the annuity tax penalty only showed 4 MONTHS of withdrawals... and the policy was at least a year old (I think).
I find it almost unfathomable that someone could spend DECADES in this business and purposefully not know "the IRS side" of things in regards to the products they sell. I do hope that's fabricated. If not, that's even scarier.
