Annuities Coming Under Increased Scrutiny
Carmen Migliaccio said her husband thought he was ensuring their financial well-being when he shifted the bulk of their savings into a Midland National Life Insurance Co. annuity.
The problem, she said, became apparent only after he died in May: The annuity wasn’t scheduled to begin making payments until Jan. 27, 2045 -- when John G. Migliaccio would have been 115 years old.
On Tuesday, his widow sued Midland National, accusing the company of unfair sales practices and failure to comply with state disclosure rules governing annuities.
She said that when her husband bought the annuity, “he was a sick man and he wanted to do it, so I said OK. Now I feel like they took advantage of us.”
Annuity sales practices have drawn increasing scrutiny from state and federal regulators. In fact, Migliaccio’s attorneys are seeking class-action status for what they claim are about 10,000 people who bought similarly flawed policies.
Bo Phillips, an attorney for Des Moines-based Midland National, declined to comment, saying company executives hadn’t reviewed the lawsuit.
John Migliaccio had purchased what’s known as a deferred annuity -- an investment contract that pays out a set monthly amount on maturity. Deferred annuities have become popular savings vehicles for the elderly. They are commonly sold by insurance companies and include death benefits to survivors.
Migliaccio said her husband already had an annuity with Conseco Inc. A sales agent for Midland National, she said, persuaded him to cash in that policy and to shift the nearly $43,000 in proceeds to the Midland National account in January 2003. Critics say that for most investors, there are cheaper ways to accomplish the investment and insurance goals served by annuities. But many people are unaware of these other options and are pushed into annuities by sales agents who earn hefty commissions on the products.
Midland National’s annuity policies were especially ill-suited for seniors because policyholders could withdraw only limited amounts of their money for the first 13 years without suffering so-called surrender charges, which could run as high as 22% of the amount withdrawn, said William Shernoff, Migliaccio’s lead attorney.
“Many times seniors need to access their money for healthcare or other emergencies but are hampered in doing so by penalties,” he said.
On top of that, he said, a provision in Migliaccio’s policy put off the payout stream until 2045.
“If seniors don’t get their monthly payments until after their life expectancies, then it’s not really an annuity policy at all,” Shernoff said. “As far as I’m concerned, it’s a ruse.”
California Atty. Gen. Bill Lockyer said his office was investigating several incidents related to annuity sales.
“There is a lot of evidence of abuses,” he said, “and somebody who is elderly does not have the time to recover.”
Lockyer said his staff was probing one “living trust mill” that used 60 telemarketers and 200 sales agents to offer seniors free or low-cost estate planning services as a pretext to pitch unsuitable annuities.
The state has taken some steps to guard against abusive sales tactics. A law that took effect last year, for example, requires sales agents to give written notice at least 24 hours in advance before making sales calls to homes.
The NASD, the U.S. brokerage industry’s self-regulatory body, and the Securities and Exchange Commission are considering stricter rules covering the marketing of variable annuities. Variable annuities generally include an investment in mutual funds but don’t necessarily provide a set or minimum guaranteed payment.
