Premature termination of an annuity

[Elvago2017]

What is the name of your state? NY

Ten years ago, I set up a 20-year term annuity directly with an insurance company from a death benefit. However, the company mistakenly set the term for 10 years and is now terminating it, claiming they have no further obligations. This will significantly reduce our income, as we've been relying on it for financial planning, comprising about 40% of our monthly income. The paperwork does show a 20-year term. We have contacted the company, but their response is that they have fulfilled their obligations. We are filing a formal complaint but have had no other negotiations or terms addressing this error. What options do we have to enforce the originally agreed 20-year term?

 

[adjusterjack]

The paperwork does show a 20-year term.

What paperwork?

the company mistakenly set the term for 10 years

Presumably you got something back with 10 year annuity written on it?

If you did, and just didn't pay attention to it, then I don't see any remedy.

 

[Elvago2017]

Good questions, both of them. Thank you for responding.

The paperwork was the original application, which we filled out requesting the 20-year term, and a confirmation letter from the insurance company acknowledging the 20-year term.

The second question is thorny. When we corresponded with the company's customer service, they sent us a copy of a confirmation letter they said they sent us. It indicated a10-year term. We never saw this letter before and have no record it. This we'd swear in an affidavit. Nothing in any of the payment correspondence they subsequently sent us ever indicated a 10-year term -- it specified no term at all.

 

[AlmostThere]

Does the amount you received match the amount set out in the 20 year annuity payouts? Or was it more, and the increase went unquestioned?

Does the amount you were paid out fulfill the annuity?

 

[Elvago2017]

Does the amount you received match the amount set out in the 20 year annuity payouts? Or was it more, and the increase went unquestioned?

Does the amount you were paid out fulfill the annuity?

Good important questions. Unfortunately, I don't have exact answers.

Presumably, the amounts they paid us were higher than they should have been (they paid us monthly) because they were working off a 10-year term. I have no idea what the payments should have been if they had paid us according to a 20-year schedule. We did not know they were paying us at the incorrect time schedule, and it wasn't that it was unquestioned, it was that the mistake was unknown to us.

What complicates the calculations is that the payments were linked to the performance of the stock market. Who knows what the market will do over the next 10 years?

The insurance company says they paid in full -- but they are working off a 10-year payment schedule. If it went to the full 20-year term, it's more likely than not they would have paid more in total dollars than what they in fact paid us over the past 10 years. But it's complicated, of course, because of the time value of money, because they would have paid us more money earlier than they should have.

The intangible here is that we relied on this income stream to make our retirement decisions -- yes, we're old and are unlikely to go back to work. Imagine losing 40% of your monthly income because of a clerical error.

 

[LdiJ]

Good important questions. Unfortunately, I don't have exact answers.

Presumably, the amounts they paid us were higher than they should have been (they paid us monthly) because they were working off a 10-year term. I have no idea what the payments should have been if they had paid us according to a 20-year schedule. We did not know they were paying us at the incorrect time schedule, and it wasn't that it was unquestioned, it was that the mistake was unknown to us.

What complicates the calculations is that the payments were linked to the performance of the stock market. Who knows what the market will do over the next 10 years?

The insurance company says they paid in full -- but they are working off a 10-year payment schedule. If it went to the full 20-year term, it's more likely than not they would have paid more in total dollars than what they in fact paid us over the past 10 years. But it's complicated, of course, because of the time value of money, because they would have paid us more money earlier than they should have.

The intangible here is that we relied on this income stream to make our retirement decisions -- yes, we're old and are unlikely to go back to work. Imagine losing 40% of your monthly income because of a clerical error.

You are going to need a sit down consult with a financial advisor to figure out whether or not you received the total amount of money that you should have received, under the contract that you signed. If you did, you have no recourse. If you did not, then you might have recourse.

 

[adjusterjack]

and a confirmation letter from the insurance company acknowledging the 20-year term.

What was the exact date of that letter?

When we corresponded with the company's customer service, they sent us a copy of a confirmation letter they said they sent us. It indicated a10-year term.

What was the exact date on that confirmation letter?

And at some point shortly after the application and the first confirmation letter did you get an annuity contract. An annuity contract is sorta like your home or auto policy. It has a declarations (summary) page followed by many pages covering the terms and conditions of the annuity along with payout examples.

It looks something like this sample from the SEC:

https://www.sec.gov/Archives/edgar/data/72176/000119312506062800/dex99b4g.htm

Note that, in this instance, the contract date and the maturity date are 20 years apart and are spelled out quite clearly.

Where is your annuity contract and what does it say for the issue date and maturity date?

 

[AlmostThere]

Good important questions. Unfortunately, I don't have exact answers.

Presumably, the amounts they paid us were higher than they should have been (they paid us monthly) because they were working off a 10-year term. I have no idea what the payments should have been if they had paid us according to a 20-year schedule. We did not know they were paying us at the incorrect time schedule, and it wasn't that it was unquestioned, it was that the mistake was unknown to us.

What complicates the calculations is that the payments were linked to the performance of the stock market. Who knows what the market will do over the next 10 years?

The insurance company says they paid in full -- but they are working off a 10-year payment schedule. If it went to the full 20-year term, it's more likely than not they would have paid more in total dollars than what they in fact paid us over the past 10 years. But it's complicated, of course, because of the time value of money, because they would have paid us more money earlier than they should have.

The intangible here is that we relied on this income stream to make our retirement decisions -- yes, we're old and are unlikely to go back to work. Imagine losing 40% of your monthly income because of a clerical error.

You can start by asking for a full accounting of the annuity.

Did you receive monthly statements that gave accounting, how many months were left, etc?

 

[Mark_A]

Presumably, the amounts they paid us were higher than they should have been (they paid us monthly) because they were working off a 10-year term. I have no idea what the payments should have been if they had paid us according to a 20-year schedule. We did not know they were paying us at the incorrect time schedule, and it wasn't that it was unquestioned, it was that the mistake was unknown to us.

What complicates the calculations is that the payments were linked to the performance of the stock market. Who knows what the market will do over the next 10 years?

The insurance company says they paid in full -- but they are working off a 10-year payment schedule. If it went to the full 20-year term, it's more likely than not they would have paid more in total dollars than what they in fact paid us over the past 10 years. But it's complicated, of course, because of the time value of money, because they would have paid us more money earlier than they should have.

1. Are you sure it was a variable annuity tied to the stock market return, or was it a fixed annuity (typically tied to US Treasury rates at time of purchase)?
   
   
2. Did you receive the same or different amounts each month during the 10 year life of the annuity?
   
   
3. What was the total amount invested, and what were the monthly payments (or sum of monthly payments if variable) for the 10 years? If you don't want to reveal that exact information, just assume you invested $250,000 in the annuity and how much money did you receive relative to that initial investment over the 10 years in total?