Media misunderstanding can lead to misinformation and confusion

Articles on the topic of annuities often mix discussions of fixed and variable products without any indication as to which statements apply to which products. For instance, it common to begin discussing fixed annuities and then throw in a comment regarding high surrender charges and high fees—fixed annuities typically do not incorporate fees of any kind. Surrender charges are generally the only potentially direct charges to the customer. As mentioned, they can be partially or completely avoided in many circumstances.

References to long periods of time before the contract matures also result from the complete misunderstanding of what a maturity date really is. The maturity date is typically the LAST date by which the client must take receipt of the proceeds, not the first date on which they may do so without surrender penalties.

References to “complicated products” and confusing language are also generally highly overstated. The various state regulations require that insurance contracts be “readable”. And they manage this requirement by applying Flesch scoring methods to the contract language—these scores may, for instance, require that the contract be “readable” by someone with a 10th grade education.

Further, in an effort to make sure that the client has understood what has been sold to them, most companies now require disclosure statements that detail the specific component of the product.

There is much negative press regarding information being deliberately hidden or misrepresented to a client. This is untrue. An insurance policy (of any type) is a unilateral contract—which means it is drafted in whole by one party and accepted or rejected by the other in total. There is no negotiation involved. These types of contracts are always construed by the courts against the drafting company. Thus, there is nothing to be gained by the carrier using confusing or ambiguous language.

Advertising materials are also covered by state regulations. If a product is mentioned by name, surrender charges must be included in the advertisement.

Details of surrender charges are always included on the “spec” page prominently positioned at the front of the contract.

And if all else fails, the client always has a free look period in which to change his mind.