Suitability review requires sellers to determine the appropriateness of the sale or replacement of any annuity contract when recommending such a transaction to a consumer. Through examinations and investigation, DFS has identified troubling practices in annuity replacements that can cost New Yorkers thousands of dollars in retirement income.

“Annuities are crucial products for consumers to obtain retirement security,” said Superintendent Vullo. “Compliance failures among advisors, distributors and insurers allowed improper replacement practices to occur. DFS will take decisive action to prevent industry practices that deprive consumers of the maximum amount of retirement income to which they are contractually entitled.”

During the course of regular and targeted examinations, DFS has discovered that some insurers, producers and distributors have been recommending that consumers replace existing deferred annuities with immediate annuities. The consumers were encouraged to do so without consideration of lost benefits and without being shown a comparison between the income benefit available under the consumer’s existing annuity and the amount available under the proposed annuity, in violation of New York Insurance Regulations 187 and 60.

DFS is conducting an industry-wide review of annuity replacement practices in New York. The Superintendent will take appropriate action with respect to insurance producers, distributors and companies found to have engaged in improper replacements.

Annuities are contracts between life insurance companies and individuals that are designed to provide guaranteed retirement income payments for the individual’s entire lifetime, and, as an option, the lifetime of a surviving spouse. Immediate annuities are products that provide various payout options for guaranteed lifetime income. Deferred annuities are deposit-type products that allow consumers to accumulate money held by the insurance company and earn interest before the consumer starts receiving an income stream. Often, existing deferred annuities may provide for a larger guaranteed income amount than a new immediate annuity because of more favorable minimum interest rates and mortality rates.

Replacing deferred with immediate annuities consumer tips

• Make sure you understand your existing annuity and the “replacement annuity” you’re thinking of buying.
• New York law requires that consumers thinking about buying a replacement annuity be provided a Disclosure Statement. The statement should provide information including a general side-by-side comparison of the anticipated future performance of the existing annuity and the replacement annuity, comparative income benefits, any surrender charges for terminating the existing annuity, and other important information.
• Request a Disclosure Statement from your insurer or the broker/agent selling the annuity replacement.
• Just because an annuity is called an “Immediate Annuity” doesn’t mean it necessarily provides a larger guaranteed income amount: Be aware that a “Deferred Annuity” may provide for a larger guaranteed income amount than what a replacement Immediate Annuity would provide. You should carefully review the comparison between any income options available under your existing Deferred Annuity and the income stream available under the replacement Immediate Annuity.
• Annuities are complex products. If you do not understand any aspects of your existing annuity and the replacement annuity, make sure to ask your insurance agent, broker, or the insurer any questions.
• To verify the licensing status, or file a complaint about an insurance professional or insurer licensed in New York, visit the New York State Department of Financial Services website at www.dfs.ny.gov and select the “Who We Supervise” link, or call (800) 342-3736. You may also contact the New York State Department of Financial Services with general questions about annuities or other insurance products.
• If you believe you made a mistake by replacing your annuity you can cancel the new annuity for any reason within 60 days after you received the new annuity. Your prior annuity will be reinstated. Premiums you paid for the new annuity will be refunded when you return the annuity contract to the insurance agent, broker or insurer that sold it to you (get a receipt or send it by certified mail so that you have proof you returned it).