Wolf Administration Joins Annuity Scam Victim to Detail Stronger Consumer Protections in New Law
Insurance Commissioner
"This law is an important part of
An annuity is a contract between an individual and an insurance company for the payment of money while the individual is living. Annuities are often part of retirement financial plans. Altman thanked Sen.
"Annuities can be an important part of an individual's retirement financial plan, but it's vital the annuity be right for the person buying it," Altman said. "This law puts additional requirements on both agents and insurance companies to make sure an annuity is appropriate for the consumer and gives my department more authority to hold agents and insurers accountable."
The new law adds consumer protections to annuity sales by requiring an agent, or an insurance company if it sells directly to a consumer, to gather much more financial information to determine whether an annuity is suitable for the consumer. Under the law, anyone selling an annuity must base the annuity's suitability on the consumer's:
* Age and annual income
* Financial situation, needs experience, and objectives
* Intended use of the annuity and time frame for using the money
* Existing assets, including investments and life insurance
* Risk tolerance and tax status
Under the old law, someone selling an annuity only needed to know the consumer's financial and tax status, investment objectives, and other information the seller considered reasonable.
"One scam this law will help prevent is called 'churning' or 'twisting', which happens when someone sells a replacement for an existing annuity the consumer already owns, which does not benefit the consumer, but often provides a hefty commission for the seller," Altman said.
This is what happened to 78-year-old
"We were never told about these surrender charges, only that the new annuities would have a higher interest rate,"
Two agents, working as a husband and wife team, selling the replacement annuities made more than
The new law requires an agent or insurance company to inform consumers of:
* Any surrender charges they face if replacing an existing annuity
* Any investment advisory fees, tax penalties, or other costs
* Any loss of benefits or changes to riders by replacing the existing annuity
"Importantly, the seller must take into account whether the consumer has had another annuity exchanged or replaced within the last 36 months, to better protect unsuspecting consumers from being victimized by this 'churning' of annuities," Altman said.
The new law also requires, for the first time, anyone selling annuities in
Agents or insurance companies must also make written record of their recommendation and get a signed statement from the consumer if the consumer refuses to provide requested financial information, or buys an annuity the agent or insurer does not recommend. And, an insurance company may review the seller's recommendation and refuse to issue the annuity if the company believes it is not suitable for the consumer.
"Most people selling annuities are honest and do what is right for their customers. This new law won't stop every scam artist, but it gives consumers much stronger protection, and gives my department the ability to take stronger action against those who break the law," Altman said.
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