September 6, 2008
I have read many of the self serving statements by insurance industry members appose to these rule changes. I would like to relate the following story of elder abuse which I believe may be rampant in the indexed annuity insurance industry.
My 83 year old mother was sent a letter by a representative of the insurance company holding her fixed rate annuity. This annuity represents nearly the sum total of her remaining assets. This agent told my mother that she had a perfectly good annuity paying 4%, but that it needed "updating, and modernizing". He drove some distance to my mother's house and "helped" her fill out the paper work. She enjoyed his warm personality and his help, but had no clue what she was signing or why.
Here is what he did. He had her sign papers cashing out her annuity paying 4% and decades past any withdrawal penalties. The cash was then deposited in a money market account with a company not associated with his insurance Company. From there the money was transferred back in to his company to purchase a paid up Indexed Annuity initially paying 3.5% the first few years. This annuity is guaranteed to pay only 2% over the life of the contract. It also came with nine years of penalties for early withdrawal. This makes no sense for a woman a decade past the median life expectancy.
I discovered this subterfuge only because I found a 1099 form in my mother's income tax papers for 2007. The money market generated a federal 1099Ins form indicating that interest had been paid. Had I not seen this paper I would have been unaware of the situation.
In the course of trying to find a way to file a complaint with the insurance company I was bounce between at least 5 different persons and twice as many phone trees. While working my way through one of these phone trees I happened to find one that offered company agents a way to sign up for training in "switching older annuities in to the new indexed products".
I believe there needs to be careful national regulation of indexed annuities and there should also be easy ways to address the type of elder abuse described above. There should be hard penalties for both the agents and the companies caught slyly selling these annuities to unsuspecting and easily confused elders.
Sincerely,
Alan Hooker