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Seniors & Annuities

PROTECTING INVESTORS AND SENIORS FROM INSURANCE COMPANIES AND THEIR AGENTS

      With the number of the nation’s senior citizens currently estimated at 36 million and growing, the insurance industry has tapped a goldmine, selling $217 billion worth of annuities in 2005 alone. Unfortunately for seniors, unscrupulous insurance companies, brokers and agents have also been mining their retirement funds at such a furious pace. Rising complaints from the elderly have prompted federal and state regulators nationwide to warn of company-sponsored scams. 

      In February 2008, the California Department of Insurance announced that Allianz Life Insurance Company has agreed to settle for $10 million claims that accused the insurer of targeting thousands of seniors in deceptive annuity sales. The charges were filed against Allianz, the largest seller of annuities in California, after it was found by department investigators to have deceived retirees and seniors into purchasing annuity products that were unsuitable to their needs.

An annuity is a financial product sold by life insurance companies which can provide a retiree with income in a series of regular payments.  There are generally two types of annuities.  The first is when consumer/policy holder pays a lump sum to a life insurance company which then pays out right away in periodic installments. This type is known as an immediate annuity where the payments start immediately.

      The second, and more common, is where money paid by the policyholder accumulates at interest over a period of time. The accumulated amounts will then be paid out to the beneficiary in periodic installments, usually upon retirement, in order to supplement the retirement income. This type is known as a deferred annuity. The payments are deferred for a number of years and include death benefits to survivors.

      The Department's investigation revealed that during a 1-year period in 2004-05, Allianz had deceptively replaced 126 existing annuities for seniors who were between 84 and 85 years old. Its investigators uncovered evidence that Allianz had been selling new annuities to seniors that was clearly unsuitable to their needs by using misleading marketing information. The deceptive marketing materials advertised "immediate" and "up-front" cash bonuses for consumers who purchased annuities. In reality, however, the seniors would not receive the "immediate" cash bonuses for at least five years and then only in periodic payments for ten years or life.

      One retiree was 85 years old when she was induced by an Allianz agent to liquidate her existing annuities so that she can purchase a new annuity from Allianz. She was enticed by the promise of the “immediate cash bonus” to surrender her existing annuity to purchase a new one. But the Allianz agent concealed from her the fact that by cashing in on her existing annuity before its maturity, she would have to pay a surrender charge of over $51,000. On the other hand, the insurance agent earns commission from the transfer. This practice is known as “churning” which is prohibited by the Insurance Code.

      Another 85 year old victim liquidated two existing annuities at the prompting of another Allianz agent who convinced him to purchase an Allianz policy with the promise of an immediate bonus. He was also led to believe that he could cash in on his annuity at any time.  After attempting to withdraw a large sum of money from his annuity, this elderly victim was informed that he would incur a sizeable surrender charge. Had this senior not been deceived by a so-called "immediate" bonus and false representations that he could withdraw his money without penalty, he would not have replaced his existing annuities with the Allianz policy.

      Retired senior citizens, largely because of failing physical and mental health, are most vulnerable to deceptive marketing practices.  “Free” financial workshops and estate planning seminars (often offered with free dinners) entice seniors to provide confidential financial information to brokers and agents who use them for prospecting annuity scam targets. By styling themselves as financial experts and advisors, annuity salesmen can easily gain the trust of seniors and other investors who become easy preys to deceptive sales techniques.

      If you or your elderly relatives have been approached by an agent selling a deferred annuity, watch out for the above traps and deceptive marketing practices. If a deferred annuity has been purchased, it is in your best interest to immediately review the annuity policy for a deceptive “cash bonus,” an illusory maturity date, or a hidden surrender charge, that makes your money inaccessible during your lifetime.  An experienced insurance law attorney could help you understand and answer the questions regarding your annuity.

© Law Offices C. Joe Sayas, Jr.