Annuity contracts have two parts – the accumulation phase, and the liquidation (distribution) phase. Structuring these contracts incorrectly can result in unwanted tax consequences, unintended distributions, and possibly no enhanced death benefit being paid.
When owners, rather than annuitants, of annuitant-driven contracts die, structuring errors may surface, resulting in lawsuits, arbitrations, bad publicity, and substantial costs.
Thus, it is a financial representative's legal responsibility and ethical duty to:
- Review samples of annuity contracts offered for sale to become aware of unwanted outcomes.
- Structure annuity contracts to benefit their clients and their clients' families.
- Be sure of the solvency of the insurance company offering the annuity. There have been failures.
- Understand contract expenses, commissions, and surrender charges.
- For deferred fixed annuities, review the history of the renewal rate. Less ethical companies may offer a high initial rate guarantee, and then make up for it through very low renewal rates, to the contract holder's detriment.
- For variable annuities, know who the fund manager is and the performance history of the funds being offered. Read the prospectus for any investment.
