Insurance brokers across the country are paying attention to a recent development in California in which one of their own has been arrested and jailed for selling “a complex indexed annuity” to an elderly woman with dementia.
According to a Wall Street Journal report this week, independent insurance agent Gary Neasham was sentenced to 90 days in prison for his role in selling an 83-year-old woman on an annuity claim, a type of savings program that promises dividends based on the performance of stocks or other funds.
Those who purchase these annuities are prevented from withdrawing money early if they don’t want to lose any of their initial investment. They are promised they won’t lose any of that initial payment if they see the life of the annuity through to the end of the term. In some cases however, that can be longer than a decade and it may be those details which confuse those who are looking to invest.
Neasham told Wall Street Journal that when the 83-year-old customer of his signed up for the annuity she did not appear to be suffering from any signs of dementia when she bought into the annuity in 2008.
This case has underscored an ongoing debate between insurers and authorities charged with protecting consumers from insurance fraud.
Those supporting insurance agents believe there is nothing in their professional training which allows them to diagnose a person looking to invest in an annuity or any claim with any medical condition, let alone dementia. They are however, increasingly apprehensive now about selling annuities to seniors or other possible vulnerable customers because of this California case.
When Neasham was arrested, California’s head of its insurance commission announced that insurance agents “who steal from vulnerable seniors will not get away with their shameful tricks,” according to the WSJ.com report.
Sales of indexed annuities have quadrupled, the report indicates, in the past decade as consumers look to take advantage of a weak stock market that seemingly has only one place to go … up. More than $32.2 billion was recorded in indexed annuity sales in 2011.
This issue dates back to the mid-2000s when several state attorneys general filed lawsuits against insurance companies to prohibit them from targeting “vulnerable” consumers like senior citizens with complex investment schemes like those presented in these annuities. Many seniors and other confused consumers clearly didn’t understand or were not made fully aware of the penalties for withdrawing money early from the annuity, the governments contended. To settle those lawsuits, insurers promised they would do a more vigilant job of screening potential investors.
A bank employee notified California’s insurance commission on the state of the 83-year-old woman when she arrived looking to withdraw $175,000 from her account to pay for the annuity. She was accompanied by her “longtime companion” who reportedly purchased a similar annuity off the same insurance salesman a few years prior. The employee said the woman appeared confused and influenced by her companion into withdrawing the money.