Annuities, Life Insurance Buyers Protected Under New State Regs

Two new regulations to combat misleading practices in the sales of annuities and life insurance to senior citizens and other consumers were introduced by Insurance Superintendent James J. Wrynn.

The two emergency regulations that have been put in place by the New York State Insurance Department:

• Require that only a suitable annuity, based on a consumer’s financial situation and needs, be recommended to a consumer by an insurer, agent or broker.

• Prohibit insurance agents and brokers from using titles, such as “certified senior advisor”, that suggest they have special expertise on issues regarding seniors when, in fact, they have no such qualifications.

“We have seen a number of cases where consumers have been convinced to buy or replace existing annuities with new annuities that are not in their best interests. This is very troubling, especially when unsuitable annuities are being marketed to senior citizens. These new regulations are critical consumer protections, especially for vulnerable seniors who need to ensure that the retirement savings they built up over a lifetime of hard work are secure,” Wrynn said.

“Consumers, especially seniors, rely on their agents and brokers to assist them in making insurance decisions,” Wrynn added. “While the vast majority of agents and brokers are honest and trustworthy, there are those few, motivated by the commissions they’ll receive, who sell annuities that put consumers’ assets needlessly at risk or use fictitious titles to mislead seniors into thinking they are qualified to help. It is our job to make sure that does not happen and correct the problem when it does.”

The Department summary follows: The first regulation is designed to stop the sale of unsuitable or inappropriate annuities such as:

• Convincing a consumer to switch from one annuity to another when the benefits of the new annuity are more than offset by the high cost of surrendering the existing annuity due to the surrender charges.

• Selling an annuity with a higher investment risk or designed for a longer term investment horizon to an elderly client who is unlikely to live long enough to realize the benefits from the annuity and whose needs would be better served by some other insurance product or investment. Agents and brokers will now be required to consider the insurance needs and financial objectives of the consumer, based on the facts disclosed by the consumer, when recommending an annuity contract for purchase or replacement, Wrynn said.

The regulation also requires that consumers: • Be informed of various features of the annuity being sold such as potential surrender periods and charges; the availability of cash value; potential tax implications if the consumer sells, surrenders or annuitizes the contract; death benefits; and various fees which could be charged.

• Benefits from certain features of the annuity being sold, such as taxdeferred growth, annuitizations or death or living benefits.

In New York, life insurance companies wrote $17 billion in annuity premiums in 2009. Annuities have increased in complexity, and some now require buyers to assume significant investment risk. Deputy Superintendent for Frauds and Consumer Services Joy Feigenbaum said,

“Annuities are no longer plain vanilla products. Most people buy annuities thinking their money will be safe. They need to know all the risks they may be taking, and whether each risk is appropriate for their given situation. We cannot allow seniors to unknowingly put their nest eggs in jeopardy.” The second regulation addresses the fact that some agents and brokers use misleading titles, such as “certified elder planning specialist” or a “certified senior advisor” to gain seniors’ confidence in order to sell them insurance products. Many of these titles are obtained by agents and brokers by simply paying a fee. In recent years, the media have reported cases of sales to elderly clients, resulting in the loss of seniors’ savings, by agents or brokers utilizing these misleading titles.

This regulation prohibits the use of these misleading titles and fraudulent marketing practices linked to the use of such titles in the solicitation, sale, or purchase of, or advice made in connection with a life insurance policy or annuity contract. “Someone with an Internet certification and no real expertise will no longer be able to impersonate an agent or broker with real training in issues affecting seniors,” Wrynn said. “Seniors need to be able to trust that the title that their agent or broker uses represents actual expertise, and this regulation will help ensure that.”

Wrynn offered tips for consumers considering buying an annuity:

• Most annuities purchased today are deferred annuities. These earn interest until their maturity date. At that point, income payments are scheduled to begin. When trying to decide which annuity to purchase, compare the cur guaranteed for, the minimum guaranteed interest rate, surrender charges and how long they last, partial withdrawal features (although not required by law, most insurers offer a 10% free partial withdrawal feature that is exempt from surrender charges) and how the partial withdrawal feature works in conjunction with any minimum distribution requirements.

• Understand that there is a difference between fixed annuities which make income payments to consumers in fixed amounts and variable annuities where the contract value or the income payments can vary with investment performance.

• Make sure that they are purchasing an annuity that has been approved for sale in New York and are wary of an agent who suggests signing an application outside New York to purchase a non-New York product.

• Remember that an annuity has a freelook period. It is stated on the cover page of the annuity and can be between 10 days and 30 days. It is extended to 60 days if you are replacing an existing annuity with a new annuity. During this period after purchasing the annuity one can return it for a refund of premium.