Do you know the saying “If it sounds too good to be true it usually isn’t”? Upfront bonuses on annuity purchases have been around for a while now, and they probably are not going away anytime soon. I am here to shed some light on the truth behind the bonus that your Insurance agent or financial advisor is trying to sell you or has sold you already. If you have already bought one of these products, there is little you can do to get your money back. However, if you are thinking of purchasing one of these products, please read this and share it with your friends.
All these bonus annuities come with a catch. The catch is that the bonus really isn’t your money and it’s not free. The reality is that you will pay more for this bonus over the life of the annuity than it is really worth. Let me walk you through this step by step. You meet with your advisor or annuity sales representatives and they present you with this “great” product that promises you won’t lose money and you could potentially have stock market like returns. Then to top it off they tell you that the insurance company is going to pay you 10 percent upfront on whatever you invest. Wow, that sounds like a great deal until you really read through the prospectus, not the sales literature.
The sales literature is there to convince you to buy, but most of the important facts are hidden or buried in small print. So you decide to buy this product and there is a ten year surrender charge schedule that penalizes if you sell the product before that time frame is over. The schedule is usually pretty expensive, upwards of 10 percent penalty, and it will deter you from selling the product before the 10 years is up. This schedule is built this way for a reason. The bonus annuity comes with an added internal expense that over the 10 year period will pay for the bonus you got up front.
In plain English, you are paying for the bonus and in many cases you are actually paying more for the bonus. In my opinion, it’s false advertising. They should call it a loan that the insurance company gave you over a 10 year period which you paid interest on. Here’s another catch. If you surrender or sell the product before the surrender period expires, you do not get to keep the bonus. Oh and by the way, you will never achieve the returns that the sales person tells you. It will not generate stock market like returns. These products will generate returns far less than what the stock market will give you over a ten year period.
Look, at the end of the day nothing in life is free. These products are sold by brokers because they pay BIG commissions. If there’s a 10 year surrender, there’s usually a 10 percent commission. How do you think the insurance company can afford that without getting it back from the consumer?