Equity Indexed Annuities
Indexed annuities sometimes referred to as fixed indexed annuities and formerly called equity indexed annuities, are poorly regulated financial instruments sold by insurance agents. Investors often are led to believe that that they can’t lose their principal investment in indexed annuities and that the annuities are very safe. This isn’t true. In fact, almost all people holding indexed annuities will lose money.
Incredibly Complex Financial Instruments
There’s almost no chance that you’ll get what you’re promised when you buy an indexed annuity. These are incredibly complex financial instruments, sold by insurance agents who don’t even necessarily understand what they’re selling. Instead of providing an honest and accurate assessment of the risks associated with the product, the agents generally default to standardized marketing claims regarding safety and stability.
As an example of the complexity of indexed annuities, we once decided we wanted to thoroughly dissect the method by which the death benefit would be calculated in a particular indexed annuity that had been sold to a client. It took one of our lawyers six hours to chart and cross-reference the various definitions and provisions needed to determine the method for calculating the death benefit, even with his comprehensive understanding of financial instruments.
In one case related to indexed annuities, the company that issued the annuity argued to the court that it couldn’t be liable because the annuity language disclosed all of the associated risks, costs, and fees. In response, the judge found that even with full disclosure, it was doubtful that a purchaser would understand the terms.