Annuity Scams

Consumers should be cautious of profit-driven insurance companies and agencies that prey on seniors and other investors by selling unsuitable products.

Alanna Ritchie, Writer
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    Alanna Ritchie

    Alanna Ritchie

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    Alanna Ritchie is a content writer for where her primary focus is on personal wealth management.

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  • Updated: May 5, 2023
  • 7 min read time
  • This page features 1 Cited Research Article
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How to Cite's Article

APA Ritchie, A. (2023, May 5). Annuity Scams. Retrieved June 7, 2023, from

MLA Ritchie, Alanna. "Annuity Scams.", 5 May 2023,

Chicago Ritchie, Alanna. "Annuity Scams." Last modified May 5, 2023.

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What Is Annuity Fraud?

While annuities are safe and useful financial tools, the industry can be confusing and some use the public’s ignorance to take advantage of unaware annuity buyers. Anyone considering investing in annuities should know the dangers of working with unscrupulous insurance agents.

Although the industry is regulated by a number of state and federal agencies, incidents still occur in which new investors and seniors are swindled into buying unsuitable products or selling their annuity for unfair amounts.

You can protect your resources and become better prepared for retirement by learning to recognize possible scams, including recognizing which contracts are too good to be true and end up costing you money in the long run.

Senior Citizens and Annuity Scams

Seniors make up 30 percent of fraud victims, according to consumer advocacy group Consumer Action. And when they fall prey to scams, they generally fall hard.

Pro Tip

The Certified Financial Planner Board of Standards found seniors who are victims of financial abuse lose an average of $140,500.

Unethical insurance agents prey on seniors who are facing deteriorating health and mental states. They use fraudulent sales tactics and peddle inappropriate investment tools. Some schemes trigger lawsuits, even class actions. Others go unreported.

Some agents target older seniors and seniors who are terminally ill, convincing them to purchase annuities that lock away money for more than a decade. These fraudulent agents set up the annuity contract so any money left in the annuity remains with the agent or insurance company instead of beneficiaries. Agents then collect benefits when the client passes away. Another scam targets mentally unstable seniors who are made to feel their current investments are unsafe or won’t last through retirement. Seniors with dementia and Alzheimer’s – people who already may struggle to make financial decisions – mistakenly trust an agent with too much financial information and control.

In some cases, law enforcement catches agents and prosecutes them for swindling seniors into purchasing the wrong products. But not all scammers get caught. Agents can intimidate seniors, making them afraid to come forward. In those cases, seniors receive no restitution and have to live with the consequences of their financial mistake.

Other Annuity Agent Scamming Tricks

Seniors aren’t the only targets of annuity scams. Agents with rehearsed pitches may lie to younger clients and have them sit through high-pressure meetings in an effort to profit from clients’ fears.

By promoting contract signing bonuses and today-only deals, agents manipulate investors into buying annuities that may not be suitable for their financial situation. They can also intentionally pitch contracts that are difficult to understand, or fail to disclose fully the maintenance and withdrawal fees.

Salespeople are also known for taking on fake titles or claiming they have fake certifications to appear trustworthy.

Pro Tip

Many describe themselves as financial consultants even though they have no finance or investment background or licensing.

Others go by “trust advisor,” “paralegal,” “senior estate planner” and “Certified Senior Adult Consultant.” Before you sign any paperwork, make sure your agent is properly licensed. In addition, for safety, any payments you make should go to the insurance company, not the agent or their agency.

Other signs someone may be trying to scam you include:

P.O. Boxes
If a salesperson asks you to send money to a P.O. box or to an individual or an agency, rather than the insurance company you are purchasing the annuity from, you should be suspicious and investigate.
Living Trust Mills
Living trust mills involve sales agents who will use your financial information to sell you a living trust or other product that you don’t need.

Annuity and Insurance Twisting and Churning

Life insurance and annuity agents may deceive clients, convincing them to reinvest in policies where the agent is the main party benefiting. Many states have laws that specifically prohibit these transactions.

In a practice known as “twisting,” agents encourage clients to exchange an annuity from one company for an investment from another company. In reality, the second investment is worth less and they will face costly surrender charges from the old policy. Agents pushing the new policy then walk away with a large commission.

Annuity “churning” occurs when unscrupulous insurance agents convince annuity owners to trade one annuity policy for another one from the same company. Clients may owe additional premiums or lose value on the policy they previously owned. The agent then collects a commission from selling a different policy.

Changing an old policy for a newer one isn’t always a bad idea. However, a good agent views it as their responsibility to ensure the new policy is in the client’s best interest.

Secondary Market Scams

Annuitants can also sell the rights to their future payments in order to get cash now. The factoring companies that purchase these rights work in the secondary annuity market, and some enter the market specifically to take advantage of those selling an annuity or structured settlement.

Pro Tip

Most secondary market scams come when sales people fail to disclose end-of-deal fees, when the on-paper terms don’t match the verbal terms that were agreed upon and when the court discovers the broker did not follow all state regulations of a sale.

In secondary market transactions, the funding company is supposed to incur all costs and fees – such as attorney fees and compliance fees. If your quote says you will receive $50,000, and you don’t receive some money up front, then you should receive a check for that amount with no additional fees subtracted.

Another scam that seems to be targeting California residents takes advantage of the backlog of cases in California courts. Normally, it takes 60 days to get an annuity sale through the courts. Some people who are in a rush for their money look elsewhere and decide to move forward with a company that promises to have them in court in 30 days, despite this being impossible.

Some unscrupulous factoring companies try to use this to their advantage, promising impossible court dates and rushing annuitants into signing contracts before they realize their court date is 60 days away.

If you are a California resident and believe you’ve been a victim of a scam, you can call the California Attorney General’s Inquiry Unit at 1-800-952-5225.

Regulating the Annuity Industry

The annuity industry is regulated at the state level, as insurance agents, brokers and companies must obtain selling licenses from the state they reside in. IRS tax laws also help regulate the sale and ownership of annuities.

There are a few agencies involved in protecting the primary and secondary annuity markets:

  • The Securities and Exchange Commission
  • Financial Industry Regulatory Authority
  • The North American Securities Administrators Association

Private rating agencies also help protect those purchasing in this industry. AM Best, Moody’s, Standard & Poor and Fitch are all companies that can review businesses before you proceed with a sale. Because annuities are not FDIC-approved, investors want to ensure the company they work with has a strong history and the resources to be responsible with funds.

Dangers of Annuity Scams & How to Protect Yourself

While checks and balances exist within the industry, you should still take responsibility for evaluating a contract you’re considering. It’s important to utilize your “free-look” time to answer any questions you have about your policy.

Pro Tip

Annuities come with a 30-day, free-look period, during which contracts may be cancelled without penalty.

These tips can help you find an annuity without putting your assets at risk:

  • Pay attention to annual maintenance costs. You want to choose an annuity with low yearly fees.
  • Avoid signing up for a premium bonus, because you will typically pay for this with surrender charges in the long run.
  • Understand liquidity issues with owning an annuity, as withdrawals come with fees and IRS tax penalties.
  • Talk to a tax professional and don’t mistake tax deferment to mean no taxes.
  • Be aware that agents will get higher commissions for variable annuity sales (annuities tied to market fluctuations).
  • Have a trusted friend, relative or attorney present when reviewing and signing policies.
  • Avoid annuities with surrender schedules that last more than seven years.
  • Make sure surrender charges are less than 14 percent of the principle.
  • Don’t put more than 35 percent of assets into annuities.

Remember, as you near retirement, you want to find investment products suitable to your assets, present needs and future goals. Annuities may be a helpful supplement to a portfolio but are not the solution for every investor.


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Last Modified: May 5, 2023

1 Cited Research Article writers adhere to strict sourcing guidelines and use only credible sources of information, including authoritative financial publications, academic organizations, peer-reviewed journals, highly regarded nonprofit organizations, government reports, court records and interviews with qualified experts. You can read more about our commitment to accuracy, fairness and transparency in our editorial guidelines.

  1. Lockyer, B. (2003, February 19). Attorney General Lockyer Warns Seniors about "Living Trust Mills" and Annuity Scams Retrieved from