A retired lawyer and investment banker in Montville, N.J., recently learned that his variable annuity with a guaranteed minimum income isn’t a sure thing.
Herbert Wreschner, 60, told the Wall Street Journal (sub. req.) that he learned of a provision that could cancel the guarantee in a conversation with a marketing representative at another insurance firm. He called his insurer--AXA Equitable Life Insurance Co.—and learned the rep’s warning was true.
Guaranteed annuities pay more than the guaranteed amount when investments do well, and at the guaranty level when investments fall lower, the story says.
But some contracts governing annuities sold from the late 1990s to 2006 allow the insurer to end the guarantee if the investment accounts are so low during the contract waiting period that they can’t cover the annual fees—a possibility that is more likely if an account holder exercises a right to make withdrawals during that time. That provision is in one of Wreschner’s insurance policies, according to the story.
In other contracts issued by about 2003, some insurers have the right to terminate the guarantee if an account holder makes an “excess withdrawal”--even if it’s no more than a dollar above the allowed annual amount.
Wreschner has examined his insurance documents, and he claims the risk wasn’t clear up front, although it’s referenced in supplemental materials sent a year later, the story says. He says AXA should warn customers about the potential lost guaranty. People “may unknowingly be putting excess pressure on their contracts by withdrawing needed funds to live on, or investing in overly aggressive equity choices” that are more likely to drop in value, he told the newspaper.
AXA Equitable associate general counsel Gerald Carroll Jr. defended his company’s contracts in correspondence with Wreschner, according to the story. He said the contracts are not misleading and, in any event, Wreschner’s complaint is “quite academic,” because his contract investment amounted to hundreds of thousands of dollars.