Retirement Planning
December 19, 2023

4 Annuity Scams to Avoid

Stewart Willis

Annuities are insurance products designed to provide a steady income stream, typically during your retirement. However, many find themselves wondering: are annuities scams?

Annuities can be beneficial because they can be useful financial tools that provide long-term fixed income for retirement. There have been instances where annuities have been misused, resulting in annuity scams.

4 Common Annuity Scams

These are some common insurance annuity scams that you should be aware of:

1. Twisting

Annuity scams like twisting are designed to mislead annuity holders into switching to a different annuity by making false promises of better returns. These annuity scams for the elderly are primarily motivated by the commissions earned from the sale without considering what is truly best for you.

Some annuity scams will misrepresent the benefits of the new policy compared to the existing one. Additionally, the new policy may offer you little to no real benefit and could even be less advantageous.

On top of that, there can be other financial implications and expenses. You may face surrender charges on your existing policy. In contrast, the new policy could introduce new fees or a longer surrender period, leading to potential financial harm.

2. Churning

Churning is an annuity scam when an insurance agent persuades you to use the funds in an existing annuity or life insurance policy to buy more coverage from the same insurer, mainly to earn extra commissions.

You will be pushed to make unnecessary additional purchases, such as more coverage or other annuities you may not need. This can lead to financial losses for the client because churning often comes with extra fees and potentially less favorable terms. Furthermore, the value accrued in their existing policy is frequently misused to finance the new one, which might not align with your best interest.

3. Misrepresented Annuities

There are annuity scams that may prioritize their commissions over your financial goals and needs, as they might try to sell you annuities that are not suitable for you. Additionally, there are individuals and companies out there who may intentionally misrepresent the terms, benefits, or fees associated with annuities.

They could make false promises about these insurance annuity scams. False claims can include high returns, no risk, or tax-free benefits that may not actually be true.

For instance, variable annuity scams could be advertised to you as high-reward foolproof products. Still, variable annuities are riskier because they depend on the market. Stay vigilant and do thorough research before deciding to purchase an annuity if it sounds too good to be true.

4. Living Trust Mills

Living trust mills are insurance annuity scams that specifically target seniors and involve selling. They usually offer estate planning services while selling unnecessary or unsuitable financial products like annuity scams.

They may approach you with misleading estate planning services to lure you in with free living trust seminars or consultations. However, these events are just sales pitches for unsuitable financial products they want to sell you, which are usually complex and expensive.

Senior woman making notes and using a calculator

Those attached to living trust mills often lack the necessary qualifications. Still, they will falsely present themselves as experts. This poses a risk to seniors’ estate planning as they may end up with legally insufficient or unsuitable documents for their specific needs.

Fraudulent Companies

Annuity scams can be backed by fraudulent companies. In some cases, they may sell you an annuity product. Once they receive the lump sum payment, they disappear entirely. Always make payments to a legitimate insurance company and not an individual.

Some insurance annuity scams are companies that resemble banks and offer certificates of deposit (CDs) to uninformed customers. These companies create an impression that they are selling a different product, only to switch it with an annuity once you are committed.

How to Avoid Insurance Annuity Scams

  1. Be cautious when dealing with agents who try to force you into purchasing an annuity, especially by using scare tactics about your financial future. Be wary of lifetime deals and limited offers.
  1. Don’t fall for annuities that make bold promises of guaranteed high returns with zero risk.
  1. Verify the legitimacy of any insurance company offering an annuity. Annuity scams often disguise themselves as legitimate entities.
  1. Make sure to carefully read the contract terms, fees, and penalties. Be thorough in examining the fine print before you buy an annuity.
  1. Aim for an annuity with an A- rating or higher to ensure you make a sound investment decision. Some companies may have a strong reputation despite their subpar products. In contrast, others may offer exceptional products but lack company quality.

Get Honest Financial Advice

While all annuities might not be scams, annuities aren’t for everyone. You need something that caters to your individual needs. When you buy an annuity, you allocate a portion of your assets to minimize risks and reduce market volatility. Buying an annuity comes at the expense of liquidity, as you are essentially trading it for increased safety and stability.

Seek advice from a financial advisor like Asset Preservation Wealth & Tax. We can offer unbiased guidance based on your specific financial goals. It's crucial to fully understand how an annuity aligns with your long-term plan and how it can boost your retirement income.

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Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not refer in any way to securities or investment advisory products. Fixed insurance and annuity product guarantees are subject to the claims paying ability of the issuing company; not guaranteed by any bank or the FDIC.

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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