DennisBeaverNovember 17, 2012 • By Dennis Beaver

Lawyers are generally late to the party, rarely witness to events which can get someone arrested or sued. But occasionally, we are listening to jaw-dropping statements, and this time, it was a stream of absolute lies from two enthusiastic, ever-so-friendly annuity salesmen at a Chamber of Commerce trade show in Southern California.

Here’s what they told an audience ranging in age from 25 to 70 — Which of the following is a true statement?

1) Annuities are straightforward, excellent investments for most people at or near retirement. In fact, the older you are when buying an annuity, financial advantages are increased, making them even more suitable.

2) Sale skyrocketed after the 2008 stock market crash as they became highly attractive to people who had lost retirement money, wanting to assure income they could not outlive.

3) While rare, when a life insurance/annuity company fails, others step in to pay policyholders. In addition, there is protection from the FDIC, just like with banks, making your annuity a safe, guaranteed investment.

Fear — a powerful sales tool

Ingrid Evans ( is a financial elder abuse attorney, now in private practice, having prosecuted one of the first cases of this type 10 years ago when she was a deputy city attorney in San Francisco. She has seen firsthand what results when an annuity salesperson’s most powerful tool — fear — is used on the elderly, she told You and the Law.

“Fear is an incredibly effective tool — the fear of not having enough money as we age. Even a mediocre salesperson will either sense that fear or create it by painting a world of gloom and doom in which the only way to safeguard yourself is by purchasing an annuity to assure a source of money that you just can’t outlive,” she explains.

“There is nothing simple about most annuity contracts, but when reduced to their basic elements, you give the insurance company X dollars, and they agree to either start paying some of it back immediately, or at a time in the future. Generally, the big selling feature is lifetime income, where payments can be yearly (from which the word, annuity — annual — comes), monthly or whenever the policyholder specifies,” Evans states.

Stockbroker X, who is a friend of this column and works with one of the nation’s largest investment houses, observes, “What made annuity contracts attractive were guaranteed increases, where, for example, your payments might increase yearly by a certain percent, or the value of the annuity would go up. Let’s say 5 percent a year — possibly more if you had an annuity which invested some of your money in the stock market.
“But in our almost zero interest rate environment, those increases have shrunk dramatically with newer policies, and some insurance companies are no longer even selling annuities,” he points out.

“Annuity ads splash around the word ‘guaranteed’ — a direct appeal to people who lost money in the 2008 crash. The impression created is that your money is just as safe as in a bank. The need for safety and a desire to protect remaining money led to a dramatic increase in annuity sales starting in 2008,” he explains.

Rarely a good investment, terrible for many people

“If you might need access to your money — possibly for health care issues, especially for those over 65 — annuities are horrible. Money is typically locked up for years, and cashing out often means enormous penalties on top of the huge commissions charged.

“What’s worse is that deferred annuities — which start paying years down the road — are being pushed to seniors. Often, these are completely inappropriate because of the age of senior citizens, many who will never be able to take advantage of the various features sold them,” Evans notes.

“Annuities are not like a bank CD. They have no FDIC protection. There is a real risk of loss. While other insurance companies may take over some assets of a failed insurer, they are not obligated to. Finally, state guarantee associations do not provide complete protection for all policyholders,” the elder abuse attorney stressed.

She is completely right.

In April of this year, even with $700 million contributed from state guarantee associations across America, thousands of Executive Life Insurance Co. policyholders lost hundreds of millions of dollars from its failure — many having their monthly payments slashed by more than half.

“Hold on a moment,” you might be thinking. “Can an annuity ever be a good investment?”

“Yes, indeed, and they do serve a purpose. That’s why it is so important to obtain objective financial advice from a fee-only financial advisor who isn’t going to be influenced by the enormous commissions annuity sales generate,” our friend, Stockbroker X told us, and we absolutely agree.

Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.