Annuity Scams and How to Safeguard Your Future Investments

Shawn Plummer

CEO, The Annuity Expert

As we navigate the labyrinth of financial planning, the quest for a secure future often leads us to the doorsteps of various investment options. Annuities are frequently touted among them as the key to a stress-free retirement. However appealing as this may sound, a shadowy underbelly of annuity scams lurks beneath the glossy promises of guaranteed income. The question at the forefront becomes: “Are annuities a scam?” The answer, unsurprisingly, isn’t a simple yes or no. It’s a matter of distinguishing the legitimate from the illegitimate and, more importantly, understanding how to do so.

Confused About Annuities?

Are you new to annuities and unsure where to begin? Visit our Annuity Learning Lab for expert guidance and insights.

Unraveling the Enigma: What is an Annuity Scam?

Annuity scams represent a growing concern in the financial landscape. In essence, these scams involve the manipulation of annuity contract terms or deliberate misinformation about the nature of the investment to exploit investors, particularly the elderly. The nature of these scams can be pretty complex, and the consequences can range from temporary financial hardship to devastating loss of life savings.

Annuity Pyramid Scheme

Deceptive Sales Tactics

Deceptive sales tactics are one of the most common forms of annuity scams. These scams involve financial advisors or salespeople misrepresenting the terms of the annuity, including the benefits, risks, or costs associated with the contract.

Example: An agent might oversell the benefits of an annuity, glossing over potential penalties, fees, and surrender charges that could make it difficult for an investor to access their money.

 Annuity Scam


Churning” is another type of annuity fraud. This involves an agent convincing an annuity holder to switch from one annuity to another, usually to earn additional commissions. This practice can lead to significant surrender charges and tax implications for the investor.

Example: An agent may convince an investor to trade in their existing annuity for a new one, citing better terms or returns. However, the investor pays high surrender charges and possibly faces unexpected tax consequences.

Equity-Indexed Annuities Scam

Equity-indexed annuities (EIAs) have been the focus of many annuity scams. These complex financial products can be hard to understand, leaving room for unscrupulous agents to mislead investors.

Example: A financial advisor may promise high returns on an EIA without adequately explaining the potential risks or the complex calculation of returns, leading the investor to believe they are guaranteed an inevitable return.

 Annuity Scams

Bait And Switch Advertisements

Investment firms sometimes use fear-based advertising to caution consumers about annuities’ potential risks and complexities, thus stoking anxiety. This serves as a ‘bait’ to capture attention. Once consumers are concerned, firms ‘switch’ the narrative, presenting their investment products as safer, simpler alternatives. This leads consumers to transfer their savings into these proposed investments, which might not always align with their financial goals or risk tolerance.

Example: “Beware of Annuities” is a typical phrase that an investment firm or media-based personality (radio, TV, etc.) might use to initiate fear-based advertising. The firm could portray annuities as overly complex, fraught with hidden fees, and potentially illiquid, sowing doubts in the minds of potential investors. This fear acts as a ‘bait.’ Once the consumers are concerned, the firm ‘switches’ to promoting their alternative investment products, promising transparency, flexibility, and potentially higher returns, persuading consumers to move their savings away from annuities.

Protective Measures Against Annuity Scams

Do Your Homework

The first step in protecting yourself from potential annuity fraud is thoroughly researching the product and the person selling it. Don’t be afraid to ask questions about fees, penalties, and the company backing the annuity.

Consult a Trusted Financial Advisor

Before making any decision, it’s wise to consult with a trusted financial advisor who is well-versed in annuities and can guide you accordingly.

 Annuity Fraud

Know Your Rights

Every investor has certain rights. If you believe you’ve been a victim of an annuity scam, don’t hesitate to report the incident to the proper authorities.

Next Steps

While the world of annuities can seem daunting, it’s crucial to remember that not all annuities are scams. However, understanding the potential pitfalls and taking precautions can shield you from falling into the trap of an annuity scam. In the end, informed decision-making is your best defense against financial fraud. As the adage goes, it’s better to be safe than sorry – especially when your future financial stability is at stake.

Annuity Scams

Request A Quote

Get help from a licensed financial professional. This service is free of charge.

Contact Us

What are some common annuity scams?

One of the most common annuity scams is high-pressure sales tactics. These scams usually involve an unscrupulous salesperson who pressures you to purchase a policy without explaining all the details or risks.

What are some standard fees associated with annuities?

Annuities can come with various fees, including surrender charges, mortality and expense risk charges, contract administrative fees, annual operating costs, and account maintenance fees. Understanding an annuity’s details is vital before signing the dotted line.

What are some potential risks when investing in annuities?

While annuities can provide a steady income stream, they also come with certain risks. These include market risk (if the investments decrease in value), inflation risk (loss of purchasing power due to rising prices), and interest rate risk (if rates decline).

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

Scroll to Top