New York Probes ‘Troubling’ Annuity Replacement Practices by Insurers

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.

The DFS said that, during the course of regular and targeted examinations, it discovered that some insurers, producers, and distributors have been recommending that consumers replace existing deferred annuities with immediate annuities. According to the DFS, 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.

Among other things, New York law requires that consumers thinking about buying a replacement annuity be provided a disclosure statement that provides information including a general side-by-side comparison of the anticipated future performance of the existing annuity and the replacement annuity.