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TAG | insurance company annuity

Apr/11

26

John Hancock to Settle Calif. Death Benefit Investigation Worth $20M; Ongoing Investigation in Florida

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In an April 22, 2011, article on Investmentnews.com written by Darla Mercado, she writes that California announced a settlement with John Hancock Financial Services Inc. after an investigation revealed that the carrier failed to deliver deceased clients’ death benefits promptly to the tune of $20 million.

This announcement follows a three-year audit investigation of 21 life insurers performed by the state’s controller, John Chiang, in an attempt to determine whether the carriers were complying with California’s unclaimed property laws.

The article goes on to say that those escheatment laws require businesses to submit lost or abandoned financial accounts to California after three years of inactivity in order to protect clients’ property from getting lost during mergers or bankruptcies, or from being depleted by fees. Other states have similar unclaimed property laws.

“While John Hancock is the first to be held accountable, it will not be the last,” Mr. Chiang said. “I am prepared to pursue all actions necessary — including litigation — to bring the rest of the industry into compliance.”

Investmentnews.com reported that California’s investigation revealed that life carriers failed to pay up death benefits to clients’ beneficiaries. Instead, they would draw from the policies’ cash reserves to pay premiums even after the client had died, according to the controller’s announcement. Once the policy was fully depleted, the insurers would cancel coverage.

The investigation also revealed that carriers did not routinely cross-check the owners of the dormant accounts with government databases listing the names of the dead. In other situations, the carrier knew the policy owner was dead but still failed to tell the beneficiaries, according to Mr. Chiang’s office.

Ms. Mercodo reported that in one of the John Hancock cases, the carrier issued a policy in 1963 to a client who died in 1999. John Hancock allegedly continued to pull premium payments from the cash reserves until the policy was canceled in 2009. Eleven years after the customer’s death, the carrier still hasn’t paid the beneficiaries or sent any of the death benefits to the state controller’s office, according to the controller.

In the Investmentnews.com article we learn that the same activity occurred with annuity contracts, according to Mr. Chiang’s office. John Hancock issued a contract in 1991 to a client who died four years later. The insurer’s files reveal that the deceased client’s mother called in 2002 to report the client’s death. Even though John Hancock noted in its files in 2005 that the client had died, the company allegedly didn’t pay out the death benefits to the client’s estate until 2009, the investigation revealed.

It was reported that aside from reuniting owners or their heirs with more than $20 million of death benefits and matured annuities, John Hancock also will have to restore the value of some 6,400 affected accounts going back to 1992 and pay California compounded interest of 3% on the value of the amounts held from 1995 or from the date of an affected policy owner’s death, whichever is later.

“John Hancock is outraged by the unfounded allegations and characterizations contained in today’s press release by the California controller’s office,” the insurer said in a statement. “Indeed, by its actions today, California has violated the very agreement that it negotiated and signed with John Hancock.” The insurer denies any allegations or characterizations of wrongdoing.

Florida Too

Carriers’ compliance with unclaimed property laws also will be the topic of a May 19 hearing in Florida, hosted by that state’s Office of Insurance Regulation. The office subpoenaed Metropolitan Life Insurance Co. and Nationwide Life Insurance Co, asking that the insurers send representatives to discuss the carriers’ practices.

It was reported that an investigation in Florida revealed that some carriers use the Social Security Administration’s death master file to find out about a client’s death and stop annuity payments, but fail to use that information to look into claims for death benefit. The state is a part of a national task force looking into carriers’ claims settlement practices.

“This appears to be an industry practice,” said Jack McDermott, a spokesman for Florida’s Office of Insurance Regulation. “We’re looking at a multitude of companies — some of the largest ones in the country.”

“Nationwide will review the information from the Florida Office of Insurance Regulation and will cooperate with their inquiry,” said spokesman Chad Green. “We stand by our business practices and are committed to serving the needs of our customers.”

“MetLife always fully cooperates with inquiries from regulators,” said spokesman John Calagna. “We will address whatever questions the Florida insurance department may have regarding this matter.”

Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

26

Florida’s Office of Insurance Regulation to Hold Public Hearing on Life Insurance Companies’ Practices

Comments off · Posted by admin in FINRA

 On Friday, April 22, 2011, on Florida’s Office of Insurance Regulation’s website, the following article appeared:  The Office will conduct a public hearing to evaluate a potential industry practice that involves claim settlement practices, use of the U.S. Social Security Administration’s Death Master File and compliance with unclaimed property laws.

It was announced that the Florida Office of Insurance Regulation (Office) delivered investigative subpoenas to Metropolitan Life Insurance Co. and Nationwide Life Insurance Co. requesting that a corporate representative appear in Tallahassee to explain their company’s business practices regarding these issues. Although these are the first companies to receive subpoenas – the Office is examining other companies on this issue because the Office’s information encompasses a substantial part of the life insurance industry.

The Florida Office’s ongoing industry examinations have revealed that some companies may use the Death Master File to stop annuity payments, but fail to use this same information to investigate claims for life insurance proceeds to the detriment of policyholders and beneficiaries.
                               
Call a Securities Arbitration Lawyer for a free consultation on how to recover your investment losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Apr/11

5

FINRA Fines and Suspends David Wayne Bombard

Comments off · Posted by admin in FINRA

 

David Wayne Bombard (CRD #1982265, Registered Representative, Liverpool, New York)

submitted a Letter of Acceptance, Waiver and Consent in which he was censured, fined $5,000 and suspended from association with any FINRA member in any capacity for six months. The fine must be paid either immediately upon Bombard’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Bombard consented to the described sanctions and to the entry of findings that he signed customer names to insurance disclosure forms and disclosure statements in order to avoid meeting with the customers in person, in violation of New York State Department of Insurance Regulation 60, which requires that when agents sell annuity products, they complete a Definition of a Replacement Form, a Disclosure Form and a Disclosure Statement with the applicant signing each one. The findings stated that the customers intended to purchase the annuity products from Bombard notwithstanding their failure to sign the required documents. The suspension is in effect from February 7, 2011, through August 6, 2011.

This information was obtained on FINRA’s website.

 

If you feel you have been a victim of these alleged fraudulent schemes of  David Wayne Bombard, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

 

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Feb/11

24

Equity-Indexed Annuities—A Complex Choice Says FINRA

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In an article from the Financial Industry Regulatory Authority (FINRA)’s website,  they write that the sales of equity-indexed annuities (EIAs)—also known as “fixed-indexed insurance products” and “indexed annuities”—have grown considerably in recent years. Although one insurance company at one time included the word “simple” in the name of its product, EIAs are anything but easy to understand. One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there is not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another.

The FINRA article states that before you buy an EIA, you should understand the various features of this investment and be prepared to ask your insurance agent, broker, financial planner or other financial professional lots of questions about whether an EIA is right for you.

What is an Annuity?

An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. If the payments are delayed to the future, you have a deferred annuity. If the payments start immediately, you have an immediate annuity. You buy the annuity either with a single payment or a series of payments called premiums.

Annuities come in two types: fixed and variable. With a fixed annuity, the insurance company guarantees both the rate of return and the payout. As its name implies, a variable annuity’s rate of return is not stable, but varies with the performance of the stock, bond and money market investment options that you choose. There is no guarantee that you will earn any return on your investment and there is a risk that you will lose money. Unlike fixed contracts, variable annuities are securities registered with the Securities and Exchange Commission (SEC).  

What is an Equity-Indexed Annuity?

EIAs are complex financial instruments that have characteristics of both fixed and variable annuities. Their return varies more than a fixed annuity, but not as much as a variable annuity. So EIAs give you more risk (but more potential return) than a fixed annuity but less risk (and less potential return) than a variable annuity. 

EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index. Because of the guaranteed interest rate, EIAs have less market risk than variable annuities. EIAs also have the potential to earn returns better than traditional fixed annuities when the stock market is rising.

 What is the Guaranteed Minimum Return?

When EIAs were first sold in the mid-1990s, the guaranteed minimum return was typically 90 percent of the premium paid at a 3 percent annual interest rate. More recently, in part because of changes to state insurance laws, the guaranteed minimum return is typically at least 87.5 percent of the premium paid at 1 to 3 percent interest. However, if you surrender your EIA early, you may have to pay a significant surrender charge and a 10 percent tax penalty that will reduce or eliminate any return. 

How good is this guarantee?

Your guaranteed return is only as good as the insurance company that gives it. While it is not a common occurrence that a life insurance company is unable to meet its obligations, it happens. There are several private companies that rate an insurance company’s financial strength.  

What is a market index?

A market index tracks the performance of a specific group of stocks representing a particular segment of the market, or in some cases an entire market. For example, the S&P 500 Composite Stock Price Index is an index of 500 stocks intended to be representative of a broad segment of the market. There are indexes for almost every conceivable sector of the stock market. Most EIAs are based on the S&P 500, but other indexes also are used. Some EIAs even allow investors to select one or more indexes.

 How is an EIA’s index-linked interest rate computed?

The index-linked gain depends on the particular combination of indexing features that an EIA uses. The most common indexing features are listed below. To fully understand an EIA, make sure you not only understand each feature, but also how the features work together since these features can dramatically impact the return on your investment. 

  • Participation Rates. A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80 percent, which means the annuity would only be credited with 80 percent of the gain experienced by the index.
  • Spread/Margin/Asset Fee. Some EIAs use a spread, margin or asset fee in addition to, or instead of, a participation rate. This percentage will be subtracted from any gain in the index linked to the annuity. For example, if the index gained 10 percent and the spread/margin/asset fee is 3.5 percent, then the gain in the annuity would be only 6.5 percent.
  • Interest Rate Caps. Some EIAs may put a cap or upper limit on your return. This cap rate is generally stated as a percentage. This is the maximum rate of interest the annuity will earn. For example, if the index linked to the annuity gained 10 percent and the cap rate was 8 percent, then the gain in the annuity would be 8 percent.

 Caution! Some EIAs allow the insurance company to change participation rates, cap rates, or spread/asset/margin fees either annually or at the start of the next contract term. If an insurance company subsequently lowers the participation rate or cap rate or increases the spread/asset/margin fees, this could adversely affect your return. Read your contract carefully to see if it allows the insurance company to change these features.

 Indexing Methods. As described in the table below, there are several methods for determining the change in the relevant index over the period of the annuity. These varying methods impact the calculation of the amount of interest to be credited to the contract based on a change in the index.

Indexing Method Description
Annual Reset (Rachet) Compares the change in the index from the beginning to the end of each year. Any declines are ignored.Advantage: Your gain is “locked in” each year.Disadvantage: Can be combined with other features, such as lower cap rates and participation rates that will limit the amount of interest you might gain each year.
High Water Mark Looks at the index value at various points during the contract, usually annual anniversaries. It then takes the highest of these values and compares it to the index level at the start of the term.Advantage: May credit you with more interest than other indexing methods and protect against declines in the index.Disadvantage: Because interest is not credited until the end of the term, you may not receive any index-link gain if you surrender your EIA early. It can also be combined with other features; such as lower cap rates and participation rates that will limit the amount of interest you might gain each year.
Point-to-Point Compares the change in the index at two discrete points in time, such as the beginning and ending dates of the contract term.Advantage: May be combined with other features, such as higher cap and participation rates, that may credit you with more interest.Disadvantage: Relies on single point in time to calculate interest. Therefore, even if the index that your annuity is linked to is going up throughout the term of your investment, if it declines dramatically on the last day of the term, then part or all of the earlier gain can be lost. Because interest is not credited until the end of the term, you may not receive any index-link gain if you surrender your EIA early.

 

  • Index Averaging. Some EIAs average an index’s value either daily or monthly rather than use the actual value of the index on a specified date. Averaging may reduce the amount of index-linked interest you earn.
  • Interest Calculation. The way that an insurance company calculates interest earned during the term of an EIA can make a big difference in the amount of money you will earn. Some EIAs pay simple interest during the term of the annuity. Because there is no compounding of interest, your return will be lower.
  • Exclusion of Dividends. Most EIAs only count equity index gains from market price changes, excluding any gains from dividends. Since you’re not earning dividends, you won’t earn as much as if you invested directly in the market.

Can I get my money when I need it? 

EIAs are long-term investments. Getting out early may mean taking a loss. Many EIAs have surrender charges. The surrender charge can be a percentage of the amount withdrawn or a reduction in the interest rate credited to the EIA.

 Also, any withdrawals from tax-deferred annuities before you reach the age of 59½ are generally subject to a 10 percent tax penalty in addition to any gain being taxed as ordinary income. 

Is it possible to lose money in an EIA? 

Yes. Many insurance companies only guarantee that you’ll receive 90 percent of the premiums you paid, plus at least 3 percent interest. Therefore, if you don’t receive any index-linked interest, you could lose money on your investment. One way that you could not receive any index-linked interest is if the index linked to your annuity declines. The other way you may not receive any index-linked interest is if you surrender your EIA before maturity. Some insurance companies will not credit you with index-linked interest when you surrender your annuity early.

Do EIAs and other tax-deferred annuities provide the same advantages as 401(k)s and other before tax retirement plans?

 No, 401(k) plans and other before-tax retirement savings plans not only allow you to defer taxes on income and investment gains, but your contributions reduce your current taxable income. That’s why most investors should consider an EIA and other annuity products only after they make the maximum contribution to their 401(k) and other before-tax retirement plans.  

This very valuable investing information was obtained from FINRA’s website.

Call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Jan/11

25

Claude Steven Mosley Fined and Suspended by FINRA

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Claude Steven Mosley (CRD #1161832,  Registered Representative, Myrtle Beach, SC) submitted a Letter of Acceptance, Waiver of Consent in which he was fined $15,000 and suspended from association with any FINRA member in any capacity for four months. Without admitting or denying the findings, Mosley consented to the described sanctions and to the entry of findings that he sold variable annuities issued by an annuity and life insurance company to a number of clients while at a member firm, and upon joining another member firm, he was appointed to sell the same annuity and life insurance products, and sought to have the variable annuities that he had sold while at the previous firm transferred to his new firm.  The findings stated the the annuity and the life insurance company did not permit the block transfer but some of Mosley’s customers submitted change-of-dealer forms to the company.  The findings also stated that Mosley contacted the company and, without specific customer authorization, reallocated the sub-accounts for numerous variable annuities belonging to many individulas including customers of the second firm that he had sold while at the previous firm. The findings also included that Mosley had not obtained written authorization for the use of discretionary authority from the customers at his second firm, and the remaining customers whose sub-accounts were reallocated were not customers of his second firm but had remained with Mosley’s first firm.  FINRA found that Mosley had not sought his second firm’s prior approval to engage in these transactions for non-customers.

The suspension is in effect from Dec. 6, 2010, through Apr. 5, 2011.  (FINRA Case # 2009019272201)

This sanction appeared on the FINRA website’s Disciplinary Actions for January, 2011.

If you have been a victim of the alleged fraudulent schemes of Claude Steven Mosley, or a similar situation, call a Securities Arbitration Lawyer for a free consultation on how to recover your losses.  To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA  the Financial Industry Regulatory Authority.

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Jul/10

1

What You Need to Know About ANNUITIES.

Comments off · Posted by admin in FINRA

In a New York Times article “annuities” are explained as a basic staple of modern portfolios, which are the financial equivalent of a backstop to guarantee a minimum of income in retirement. They work like an old-time corporate pension plan, paying out a regular amount of money over the course of retirement. The big difference is that amount you receive is wholly dependent on how much you put into the annuity.

TYPES

An annuity is a contract with an insurance company that makes payments at regular intervals for a set period of time. The classic fixed-annuity provided people a set payment for however long they lived — from a few months to decades. An insurance company’s actuaries took their best guess on your life expectancy while you hoped to outwit them and collect a check into your 90s.

To make annuities more appealing — and to bring in more money — insurance companies created more sophisticated types of variable annuities.

Few annuities are structured this way anymore. One reason is people have realized that a static payout is not great. For one thing, it does not account for inflation: $1,000 a month today will probably not buy as much in 10 or 20 years.

Many of these annuities offer the option of a higher payment if the value of the underlying securities rises yet lock in a minimum payment if they fall.

One popular annuity gives people a sense of flexibility by allowing them to withdraw some or, in certain cases, all the principal, if they need it. In living longer, people will require income for more time but they are also increasing their chances of contracting catastrophic illnesses, from cancer to Alzheimer’s, that carry huge medical costs. The guarantee of regular payments is comforting. But the need for a lump sum at a particular time can sometimes be more practical.

Other popular models are structured to continue after the original beneficiary’s death. A “joint-survivor” clause stipulates that if the husband dies first, the annuity continues to pay out to his wife through her lifetime, while another provision leaves some of the remaining principal to other heirs.

IMMEDIATE VERSUS DEFERRED

Two terms that are often used when discussing annuities. The difference is simple but often obscures the vast array of annuities being offered. With an immediate annuity, a person pays a lump sum and begins receiving income right away. That’s the immediate part. In the past, these were usually life-only annuities, meaning if you died a week later, that money was gone. Now, immediate annuities have all the variations mentioned above.

The deferred annuity has two phases — accumulation and distribution. Over a period of time, a person builds up the value of the annuity and then selects a time to start receiving payments from it. People who change jobs, for example, could opt to roll their Individual Retirement Accounts into an annuity and let the money grow there. Or they could make contributions to the annuity for a set period of time as they would with any savings plan. When they have accumulated enough to finance their goals, they can decide when they want to start receiving payments. They can start and stop the payments at will, though the idea is that they will wait until retirement.

ALLOCATION TO ANNUITIES

Regardless of what type of annuity you select, the main question is how much of your portfolio should you put into one? The rule of thumb is to use annuities to cover your basic living expenses. Most providers recommend that you put no more than a third of your assets in annuities. Others limit retirees to 75 percent. Financial advisers not associated with insurance companies will generally argue for putting little in annuities: they feel they can get better returns through a diversified portfolio of securities. That’s a harder sell, though, after two rounds of huge losses in the stock market in one decade.

BENEFITS AND LIMITATIONS

Benefit of putting a chunk of your nest egg into annuities is the guaranteed payment. Whether the economy is good or bad, an annuity pays a minimum amount of income every month. You may have to put a large part of your nest egg into the annuity to receive the amount you need to live on, but you know it will be there.

There are four main downsides to annuities.

First, they are expensive. A fixed annuity typically pays out no more than 5 percent of the principal each year. That means you would have to put $100,000 into a fixed annuity to receive an annual payout of $5,000. Even the most frugal retirees would struggle to live on $400 a month. To receive, say, $2,000 a month, they would have to invest $500,000.

Second, the other cost is the fees associated with the annuities. One rule of thumb is the more guaranteed features attached to an annuity — from inflation adjustment to joint survivor — the higher the cost. These costs, as with mutual funds, are embedded in the annuity itself. They do not come in an upfront fee but are hidden in the payouts.

The third problem is expectations. People who bought annuities with payments that grew as the underlying securities grew could be in trouble. Those payouts are not going up when the stock market loses 40 percent of its value in one year. Likewise, when government policy makers are more worried about deflation than inflation, payments that adjust for the cost of living are going to remain at the guaranteed minimum.

And finally, the government taxes distributions from annuities as ordinary income, with rates that run up to 35 percent. Money put into a brokerage account is taxed at the capital gains rate.

Like any part of a portfolio, annuities are best taken in moderation. They are a great way to guarantee a certain amount of fixed income in retirement. But if overdone, they could rob a portfolio of needed flexibility.

Annuities can be complex–make sure you are educated before purchasing. Given the stakes now that your portfolio could be down double digits, please don’t buy any financial product, index annuity or otherwise, without getting a second (or third) opinion from someone who has no stake in whether you close the deal.

If you feel you have been a victim of an alleged annuity fraud please feel free to contact an attorney, at no cost to you, to discuss your options.  Call a FINRA Securities arbitration lawyer at 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA and the NFA.

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