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How Do I Recognize an Annuity Scam?

K. Kinsella
K. Kinsella

Annuities are life insurance policies that provide the buyer or the annuitant with living benefits such as a lifetime income stream. Fraudsters in many nations attempt to dupe people into annuity scams. Many investors have trouble distinguishing legitimate annuities and financial products from scams offered by bogus firms. Investors can often detect fraudulent schemes by checking the credentials of the sales person and background information pertaining to the firm that is selling the contract.

Laws in many nations require those who sell insurance products such as annuities to pass regulatory examinations and to obtain an insurance license. Registers of licensed agents are usually available to the public. If you are presented with an annuity contract by someone who is not licensed to sell such products, this may be an annuity scam. Additionally, licensed sales people sometimes turn to fraud in times of desperation but registers detailing the credentials of licensed agents often contain information about consumer complaints and ethics violations. Prospective annuity purchasers should be wary of a sales person with a history of ethics violations.

An annuity scam may involve a fictitious company.
An annuity scam may involve a fictitious company.

Aside from requiring insurance agents to register with the national government, laws in many countries also require insurance companies to be registered. Consumers should have little trouble accessing public records that pertain to legitimate companies. An annuity scam may involve a fictitious company or a firm that operates at an overseas address. Since insurance regulators only operate domestically, most people do not buy annuities that are registered overseas unless they have a thorough understanding of the securities market in those nations.

Interest rates and monthly payments on annuities offered by different insurers tend to be similar because rates and payments at all insurance firms are impacted by factors such as national interest rates and the performance of the stock market. An annuity scam often involves a contract with an above average rate of return. Some fraudsters believe that greed will prompt people to invest in contracts that seem to good to be true. Many investors shun contracts that offer above average rates of return unless those contracts are being sold by reputable firms.

In some instances, an annuity scam may involve a seemingly mundane annuity that pays an average rate of return. The scam may involve huge penalty fees that the annuitant incurs for accessing money. Penalty fees are a standard part of most deferred annuity contracts but people can avoid scam investments by carefully reviewing the entire contract. Some annuity purchasers obtain quotes from several different firms and then compare the products, payments and fee structures to ensure that they do not end up buying an annuity with excessive fees or penalties.

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    • An annuity scam may involve a fictitious company.
      By: Rido
      An annuity scam may involve a fictitious company.