Understanding the terms and conditions of your annuity

Annuities & surrender charges
It is your responsibility to get all the information and understand the requirements before purchasing any financial products.
The complainant was in possession of a flexible premium annuity, Annuity A, from an insurance company. She received a call from her financial advisor indicating that the current rate of interest on that product was declining. After some discussion, they decided that the proceeds from Annuity A would be reinvested ‘in another fund’ in order to maximise the returns. The relevant application forms were then completed and submitted to the company for approval.

Some time after, the complainant received a phone call from the Board of Inland Revenue querying the registration of a new annuity, Annuity B. The complainant was naturally surprised since she was already in possession of an annuity and did not want another. She then visited the insurance company and discovered that Annuity A had been surrendered and the proceeds less the surrender charges were transferred to Annuity B. at that point. The complainant then requested that the insurance company waive the surrender charges on Annuity A and refund her the monies accumulated. She stated further that her servicing agent obtained the second annuity from her ‘under false pretenses’ and, given her financial situation at the time, he should be aware that she should not have taken out a second annuity.

After some investigation, the insurance company declined to waive the surrender charges on the annuity on the grounds that the complainant submitted an application form for the product and she was bound to the terms and conditions therein. Further, the agent stated that he notified the complainant of the type of plan being purchased and that it was designed to provide income upon retirement. The registration of the policy therefore followed and as this was a legal requirement the company would be unable to accede to the complainant’s request to have the plan registered.

Lessons from the case

Consumers should take an active role in their financial affairs. While the call from the agent about the declining interest rates may have been the trigger alerting the consumer about the status of her investment, the onus is on the consumer to get all relevant information before purchasing financial products. Many insurance companies have service centers and customer call centers designed to answer queries from existing and potential clients. Having signed the application form (whether she read it or not), the complainant indicated her agreement with all attached terms and conditions.