What You Need to Know About Life Insurance and Annuity Changes
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A growing number of Veterans Affairs life insurance policy holders are being unpleasantly surprised by undisclosed terms in their policies that are limiting their products’ values. There are also changes occurring with annuities that are not to the advantage of investors.
With the growing number of VA life insurance cases surfacing, the Securities and Exchange Commission is pushing for improvements in clearly developed disclosures so that individuals are aware of the risks involved with their investments.
If you have investments in government life insurance and annuities, here are a few situations you may likely encounter:
Caps. Cases are developing where insurance companies neglect to disclose that investors have a cap on some—not all—annuities. This means that when and if investors withdraw money, the funds are drawn entirely from the principal. If you are unaware of these terms, not only will your investments not grow in the way that you intended, but you may not notice this happening without a review from your financial planner.
Payment suspension. Life insurance companies behind VA contracts that were opened years ago (in some cases, over ten years ago) are making changes now without informing investors. Some individuals are experiencing suspended payments. At the time annuities were purchased, these individuals were presented vague terms that led them to believe they were permitted to make future payments. If you are just starting to research life insurance products, or if you are concerned about the terms of an existing policy, a certified financial planner can review the terms and explain if the insurance provider is reserving a right to amend your policy terms, how amendments will be disclosed to you, and if the product is the right investment to suit your specific needs.
Balance restrictions and fees. One insurance provider is adding a rider to existing contracts that affects account balances, and pushes investors toward more conservative options. There are also added fees being imposed that make what was once a smart investment choice now a poor performing option.
Discussions recently started in Congress about the tax structure of life insurance policies, which may change. Although not officially in writing yet, existing policies may fall under the tax terms at the time in which the policy was opened. This is how lawmakers have addressed the matter in the past.
The North Carolina Department of Insurance encourages residents to review figures with as many sources as possible. Consult with your life insurance agent, financial planner, and tax attorney to learn which features (such as death benefits, cash values, and dividends) are guaranteed and which are not, as well as what to expect with legislation ahead.
