Renne Sloan Holtzman Sakai LLP, Public Law Group

50 California Street, Suite 2100
San Francisco, CA 94111

(415) 678-3800 phone
(415) 678-3838 fax

Says on their web site…..

“Lawsuits have been brought that allege insurance company and bank Defendants target elders and use scare tactics to pressure seniors into investing their life savings in annuities which make the seniors' savings inaccessible for 10-20 years (even in the case of emergencies), carry exorbitant surrender charges and severe tax penalties, and create complicated estate problems after death.”

Wow, can you believe those mean people at the bank and insurance office do that? I have been a Florida licensed insurance agent since August 1985 and have literally sold hundreds of annuity and life insurance policies and therefore believe I am an expert on the subject matter.

Once again I will say, your Honor, with all due respect, wake me up for closing arguments.

Okay, let’s examine their ridiculous “allegations” and see if I can poke a few holes in their hyperbole. Let’s start with this phrase, “insurance company and bank Defendants target elders.” Now that is TRUE, it's called "Target Marketing." Since annuities are designed for the senior market over the age of 70 it certainly is true these products target that market and thus most annuities are bought by senior citizens over the age of 70. 

Very few people age 18 to 50 could invest in an annuity. Not because the products aren’t financially sound for their needs, the minimum $10,000 initial premium usually stops them dead in their tracks. Some companies minimum investment in an annuity is as low as $5,000, a few are as high as $25,000 but the average is usually a minimum $10,000 premium investment to even get into one of these contracts. One more thing…..the contracts that pay the very highest interest and have the most premium bonus paid up front to the client usually have a minimum premium of $75,000. That’s right, $75,000 dollars. Now that doesn’t sound like a financial vehicle suitable for single moms, college students or married couples with small children who are in debt up to their eyeballs. Wouldn’t you agree?

The next phrase states, “and use scare tactics to pressure seniors into investing their life savings in annuities.” Scare tactics? Hmmmmm, let’s review some of these so-called scare tactics.

#1) Mrs. Client did you know money in an annuity contract is EXEMPT from legal process? No lawyer can EVER win a lawsuit judgment against you and attach the money in your annuity pursuant to Florida Statute 222.14, this includes all civil judgments and any bankruptcy proceedings. Did you know upon your death the proceeds are paid DIRECTLY to the persons you named as beneficiaries in the contract and those proceeds are equally protected from lawsuit judgments!

#2) Did you know that since these proceeds pass by way of contract they DO NOT go through the Probate Court System and therefore probate lawyers can’t charge attorney fees on these funds upon death?

#3) Also, is there a logical financial reason you are still voluntarily paying Federal Income Tax on the interest earnings from your bank CDs when you’re not even withdrawing the interest earnings for yourself? The same money in an annuity would grow tax deferred. This means you can stop paying taxes on your interest earnings. Money, i.e. “interest” earnings in your annuity will only be taxed to you on the amount you withdraw, if any, NOT on ALL of the interest whether you use it or not like in bank accounts.

Well there you have it. The three “scare tactics” used most often by Insurance Agents during an annuity presentation. To recap, annuities provide: #1) Lawsuit protection; #2) Probate avoidance; #3) Tax deferred earnings.

These legal eagles further state, “pressure seniors into investing their life savings in annuities which make the seniors' savings inaccessible for 10-20 years.”

Mr. Attorney SHOW ME the annuity contract that “make the seniors' savings inaccessible for 10-20 years.” That’s right, SHOW ME. Produce the evidence. I want the company name and the contract form number and also the name of the state Department of Insurance that approved such a contract for sale to the public. It doesn’t exist. I don’t know of any annuity contract that doesn’t have a 10% per year FREE withdrawal provision. Your absurd assertion is designed to convey a false notion that should an 80 year widow put $200,000 dollars into an annuity she could not, under any circumstances, touch ANY of her money for 10-20 years. That is an outrageous, factually false and asinine claim.

Then in parentheses they state, “(even in the case of emergencies)” Really? Let’s discuss some emergencies and see when it would be advisable for the client to invade the principal of their annuity for an emergency.

Let’s start with a medical emergency. Certainly the risk of heart attack, stroke, cancer, accidents, broken hips and such is a reality for seniors and would be the single most expensive emergency that could materialize.  Do you need to invade more than 10% of the principal of an annuity to pay for such risks? The answer is, No. People age 65 and older have Medicare to pay for medically necessary emergencies. Most all also have Medicare Supplement policies to pay for the gaps in Medicare or have Medicare HMOs that pay 100% of these costs.

But what if they are terminal and need hospice. Again, Medicare pays for hospice care. What about nursing home costs? Yes, that certainly could be an expensive thing. Interestingly, if a client develops a true monetary catastrophic need, such as nursing home costs, the first thing the attorneys do is set up a Qualified Income Trust funded with an Immediate ANNUITY to get the client approved by the Medicaid Institutional Care Program!

I could go on but I think you get the point. Unless the Mafia is after you for your unpaid gambling debts there aren’t many, if any, real life emergencies that come up that would force a person to invade more than the annual 10% free withdrawal provision inherent in all annuities.

Also what these attorneys forgot to mention is the fact most all annuities sold have both a Terminal Illness Wavier of Withdrawal Charges and a Nursing Home Confinement Waiver of Withdrawal Charges. So their statement, "(even in the case of emergencies)" is an outright twisted material misrepresentation.

The next phrase states “carry exorbitant surrender charges.” There is no doubt about it; fixed annuities have Surrender Charges that usually last 5, 7, 10, 12 or 15 years and decrease each and every year. However, fixed annuities ARE NOT designed for someone to put their money in and take it right back out. They ARE NOT designed to work like a Money Market account. They ARE NOT designed for clients to play games with their life savings or risk their principal in the stock market.  Fixed Annuities are specifically designed for Seniors over the age of 70 as a Wealth Preservation, Income Protection and Wealth Transfer vehicle.

That being said let’s examine these “exorbitant surrender charges” on a contract I sold to an 80 year old woman last year. (Feb 2006 to Feb 2007 contract year) The Surrender Charge Schedule is for 10 years, decreases every year, and reads 16%, 15%, 14%, 13%, 12% 11% 10%, 8% 6%, 4%. The policy paid a first year premium bonus of 6%.

$100,000 premium PLUS 6% bonus equals an Account Value of $106,000 at policy issue. The contract was a Fixed Indexed Annuity using the Monthly Point to Point Strategy tied to the monthly changes in the S&P 500 Index with a 2% per month cap. Her interest credits End of Year one (1) were 10.32%. Her Account Value at the End of Year one equaled $116,939. If for reasons unknown she’s dissatisfied and wants out of the contract here’s what happens.

Remember there is a contractual 10% FREE withdrawal provision so the company takes the initial premium of $100,000 and subtracts off the 10% free withdrawal amount of $10,000 subjecting $90,000 to the 2^nd year surrender charge of 15% or $13,500. This amount is subtracted from the total Account Value. $116,939 Account Value minus $13,500 Surrender Charge equals a Cash Surrender Value of $103,439. My client would get back every penny she paid into the contract PLUS some growth. So in real dollars is that really “exorbitant,” draconian or unusually severe?

I agree a $13,500 interest earnings penalty would be a lot of money to pay to “get out” of the contract but let’s not forget the Insurance Company is NOT going to pay you a 6% interest bonus at policy issue PLUS 10.32% first year interest for you to put your money in and take it right back out. Annuities are long term contracts designed for wealth preservation, income protection and wealth transfer. The Stock Market is the place to go if you want to wheel and deal with your money, NOT an annuity contract.

Okay, the next phrase is just a bloviating attorney being an ignoramus by stating annuities have “severe tax penalties.” This is not true. If the client takes her monthly interest earnings she’ll pay income tax on those earnings just like any other interest bearing account. If the interest is left to grow in the annuity she will no longer have to pay current Federal Income Tax on those interest earnings and when she dies the beneficiary will have to pay taxes on the interest earnings growth only,  NOT on the money that was the initial premium. This is hardly a severe tax penalty. In my example above if Mom died at the end of year one with an Account Value of $116,939 her beneficiary would have to pay income tax on the $16,939 interest earnings that was never taxed. In a 30% tax bracket the beneficiary pays $5,082 in additional income tax that year from the death benefit of $116,939 providing about $111,000 cash to the beneficiary free and clear. Remember the initial premium investment in the annuity was $100,000 and even after paying taxes the beneficiary still inherits  over $111,000. This is what these attorneys are claiming to be “severe tax penalties.”

Now let me ask a rhetorical question. Who should an Insurance Agent be more concerned with? The client and their financial circumstances or the client’s beneficiary? Should we focus on eliminating the client’s tax burden by shifting taxable interest income from bank CDs and Money Market accounts to tax deferred status in an annuity or should we have our client’s go ahead and pay current income tax on their interest earnings so their beneficiary doesn’t have to pay any tax on the interest earnings from the death claim? Also if there are multiple beneficiaries the tax is spread out by their representative share of the proceeds in their own individual tax bracket.

Okay, the last phrase is the most asinine, ignorant and absolutely factually FALSE statement yet. These attorneys lastly state annuities “create complicated estate problems after death.”

Here’s exactly how complicated an annuity is after death. The beneficiary completes and signs a short one page claim form and submits the claim form along with the Death Certificate to the Insurance Company. Full account value payment in a lump sum is made within a few days. Yes, there are some contracts that have a restricted payout, usually over a five (5) year period. The other side of the story is..... those restricted payout contracts paid either an up front interest bonus to the client or higher first year interest to the client or higher guaranteed interest to the client. 

Bank CDs, Money Market accounts, Stocks, Bonds, Mutual Funds, Checking & Savings Accounts and owning multiple and out of state Real Estate properties in your own individual name upon death under a Last Will & Testament are what  “create complicated estate problems after death,"... NOT an annuity.

A fully funded Revocable Trust coupled with a Fixed Annuity eliminates the vast majority of these complicated Estate problems upon death but you’ll  never  learn that from the “Probate Practice” attorney who drafted your Last Will & Testament for $20.