It is a sad fact, but this does happen in some countries where the client is considered to be quite well educated and feels well protected by his or her current legislation in this regard.
There are many different kinds of annuities and we will not be discussing any of them in much detail here; except the standard annuity purchased from the insurance company by your average man in the street. Most of the clients making up this sector don’t realize they are actually purchasing an annuity when one of their policies for this purpose mature. The proceeds of one of these policies mature and the insurance company’s representative turn up on the client’s doorstep with the good news.
Nine times out of ten these representatives will try and ‘sell’ the client another form of policy or simply let them know their policy has matured and they can get so much a month for the rest of their lives. They then ask them to sign on the dotted line without explaining to them what really is happening but just telling them they will get their first check in “x” number of weeks.
What really happened here is that the client has accepted the proceeds from his policy, often known as a retirement annuity and purchased an annuity with the same insurance company. If one examines the interest one could be earning on the capital amount that was invested he/she will often find it is far less than he/she would be getting if the money could be invested in some form of fixed deposit with another safe and secure company like a savings bank or building society. The reason why we say “if the money could be invested” is because the law will normally prescribe that such an investment must be made with an insurance company.
Not necessarily with the insurance company that has just had their retirement annuity mature, but any insurance company. The client can ‘shop around’ and see where they can get the best return or annuity for the money they have available. The company representative normally does not have to disclose this fact and very seldom does. Over and above this ‘shopping around’ for an annuity can be a very daunting task as returns and interest can be displayed and interpreted in so many ways.
Many times when the company representative is asked why the return is so low they will have been trained to answer along the line that their company has to maintain that annuity for the rest of the clients life, through good times and bad and what would happen if they lived another forty years or more. Many of these same reps are selling retirement annuities too and here they will be emphasizing how little the investment really cost the client in the long run after tax deductions. This also seems to justify an insurance company giving a poor return to the client on their annuity.
So, always remember to try and do your homework when it comes to taking up your annuity even if you find the subject very boring because it could just save you from being ‘ripped off’ at the very time in life where nobody wants this to happen.
Michael Russell Your Independent guide to Annuity |
