ABC FinanceAnnuitiesAnnuity Scams

Annuity Scams: What Is It and How to Avoid Them

Annuity scams are fraudulent schemes aimed at stealing money from others. An annuity is a term associated with an insurance policy issued and given by a financial institution. It has the intention of paying back invested funds for a fixed income stream in the future. Life insurance companies and investment entities are the primary sources that offer annuity products. An annuity is a financial product that offers a guaranteed fixed income stream that is best for retirees. Retirees can benefit from annuities that are a good addition as part of their financial investment. Fixed annuities are safe and secure investments. The promised written statements in the contract are guaranteed and fulfilled by the financial institution. An annuity has multiple stages that are part of the process of generating the fixed income to be received in the future. One of its stages is the accumulation stage, which needs the investor’s deposit of funds on either a lump sum or periodic mode of payment. The annuity can be differentiated into two categories, either immediate or deferred annuities. An immediate annuity is the basic type of annuity. It is to pay in a lump sum contribution to the insurance company. A deferred annuity or fixed-period annuity is a type of annuity that needs to be paid within a specific period of time to the insurance company. 

Scams on annuities typically happen when one is less knowledgeable about the nature and purpose of annuities. Annuity scammers are on the hunt for the victim of the fraudulent act by sending misinformation to an insurance policyholder. Annuity scams can happen at any time and place. Scams on an annuity can be in the form of the annuity type, fraudulent insurance agents, fraudulent marketing strategies, and questionable direct phone calls. The scam can be avoided if one is knowledgeable and ready to acquire a fixed income-generating product for future use. One should notice fraudulent marketing strategies done by scammers to avoid contracting into a fraudulent contract. Questionable phone calls with an unknown number should be blocked to avoid potential fraudulent schemes.

Annuity Scams: What Is It and How to Avoid Them

What is an Annuity?

An annuity is a term used to refer to an issued contract that is provided by a financial institution. The policy is associated with an intention to pay out the invested funds for a fixed-income outlet in the near future. Investing in an annuity gives excellent returns for providing a fixed income stream that can be used with one’s future financial needs. Paying the annuities can be in way of a lump sum or periodic payments with the business entity. It can be differentiated into two classifications, either immediate or deferred annuities. An immediate annuity is defined as the primary type of annuity. Immediate annuity requires to pay in a lump sum contribution to the insurance company. Deferred annuities or fixed-period annuities are another type of annuity that requires paying the entity within a particular period of time. 

How does Annuity Scam work?

An annuity scam works by getting essential information from the insurance policyholder to take money out of it. Most agent scammers target specific persons. The persons they target are usually senior citizens and terminally ill seniors. The scammers encouraged them to purchase annuities and provided essential information that allowed them to lock away the money for years. The fraudulent scheme created by the fraudulent agents allows them to set up an annuity contract. Doing the fraudulent act allows the agent to claim the remaining money left on the annuity account instead of giving it to the owner’s beneficiaries. The fraudulent agents make false statements and promise to convince the person to invest in an annuity contract. Annuities are a legitimate form of investment, while the agents taking advantage of specific persons by getting money out of the annuity contract makes it a scam and fraudulent. 

What are the advantages of Annuity?

The advantages of Annuity are saving money, no contribution limits, and a known income-generating stream. An annuity can provide multiple benefits that one can enjoy and earn from investing in the type of investment product. To answer Annuity Basics, Formula, Benefits: How does it work? by determining the primary benefits of an annuity contract. Annuity enables people to save money by making a lump sum or periodic payments to an investment entity or insurance company. It can save money without paying taxes, which is referred to as tax-deferred growth of income. One can have no contribution limits for payment for the annuity contract. One can extend its payment depending on the preference and budget of the individual. A known income stream is generated from the beginning of the signing of a contract. The income generated from the investment is predicted and known to the account holder. 

What are the disadvantages of Annuity?

The disadvantages of Annuity are less liquid assets, a conservative nature, and a non-competitive yield for an investment. An annuity gives less liquid assets, which means the income generated from the investment cannot be directly converted into cash. Multiple payments are needed to finish and claim the income generated from the annuity investment. The conservative nature of the annuity contract restrains its investor or account holder from earning more. The rate provided in the annuity contract is fixed and irrevocable, which means that it cannot be changed. A fixed amount is given to the account holder of the annuity once it is due. A non-competitive yield or return is provided for the annuity investment. There is an opportunity cost associated with the annuity investment, especially for younger investors. Opportunity cost is the amount of money foregone from the investment, which can be invested in another aggressive type of investment that gives higher returns. 

What are the types of Annuity Scams?

Listed below are the types of Annuity Scams.

  • Assurance of not losing money. A company cannot ensure an individual from losing money in the process of investing. Investment can cost money to lose from the possible risk exposure. An annuity account holder can lose money, especially if the annuity is a variable type annuity that includes a mutual funds investment. Mutual funds are like a package full of stocks and other forms of investment that are sensitive to market rates. One can lose money by investing in a variable type of annuity. 
  • Selling of other products tied to the annuity. An agent might sell another product that is not part of the annuity contract. The selling of another product is a scheme used by scammers to get more information about the annuity account holder. 
  • Expiration of annuity. Most insurance companies’ annuity investment products have no expiration date unless they reach the age of 115. Some fraudulent agents randomly call the account owner to announce the expiration of the annuity, which is a scam. 
  • Unknown numbers. There are instances when an unknown number is registered to the phone calling for reasons to sell investment products such as annuities. The unknown number should be blocked and not be entertained to avoid annuity scams. 

What causes an Annuity to become a scam?

The causes of an annuity being a scam are its known income generation and the people investing in the annuity contract. The amount generated from the annuity is of significant value that entices scammers to steal the money for their own benefit. The amount to be generated from investing in annuity contracts is sometimes fixed and predictable. It motivates scammers to acquire the money since it can be locked away for years by the owners. One cause for an annuity to become a scam is the people who invest in the annuity product. If one is less known of the nature and purpose of annuity contracts, more likely, scams can occur. One needs to properly understand the annuity contract to ensure its safety and benefit along the investment process. 

Who is at risk of an annuity scam?

Senior citizens, retired people, and CEOs are most likely to be at risk of scams. They try to convince these particular individuals to purchase and invest in annuity contracts that are fraudulent. Fraudulent agents encourage individuals to give important information needed to steal money from one’s accounts. Scammers can lock away money without regard to the person’s state or well-being. There are risks associated with investing in an annuity contract, which includes annuity scams. 

What is the safest annuity?

The safest annuity is fixed annuities, since it have the lowest risk. Fixed annuities are less risky since one is assured a rate of return that remains no matter what might happen in the financial market. A fixed annuity is one of the types of annuity that provides security in terms of the amount of money one receives even when the economy is down. It promises a particularly fixed sum of funds to be given in the future. Fixed annuities provide a small risk in comparison to other investment products available in the market. 

How to avoid an annuity scam?

Annuity scams can be avoided in two ways, namely knowledge of annuity contracts and blocking of unknown numbers. One can avoid an annuity scam by being knowledgeable about the annuity investment terms and policies. One should have knowledge of the nature and purpose of annuity investments. One should understand the types of annuities and the mode of its payment. To avoid the possibility of an annuity scam, block the access of unknown callers on the phone. Blocking unknown numbers gives the possible risk of talking to potential scammers. One should not consider purchasing annuity contracts through phone transactions.

Want help finding your perfect solution?

Request a callback from our team of experts at a time convenient for you.