There is exactly one (1) negative feature in a Traditional Fixed Annuity or Fixed Indexed Annuity contract.
The SURRENDER charges.
They last 5, 7, 10, 12, or 15 years and DECREASE each and every year. A typical 10 year surrender charge schedule would be (12%, 11%, 10%, 9%, 8%, 7%, 6%, 5%, 4%, 2%, 0%)
These "surrender charge" percentages, while at first glance appear unusually severe or draconian, but in mathematical reality are nothing more than an "interest penalty."
Fixed Annuities are NOT designed for someone to put their money in and take it right back out like some day trader playing the Stock Market like a flea market swap meet.
They are designed for Seniors over the age of 70, primarily for the wealth preservation and transfer of their cash asset DIRECTLY to their beneficiaries or to provide a guaranteed lifetime income stream.
Let's pick on, End of Year 2, in the actual contract below.
Attorneys, stock brokers, bankers and news media would lead a client to believe if the client made an initial premium deposit of $50,924.90 and wanted to "get out" of the contract the on the last day of year two (2) she would lose 11% of her money. They would claim the insurance company would only pay her $45,323.16.
NOT TRUE, the above is an absolute twisted material misrepresentation.
These mathematical Einsteins can even "prove it" on their calculators. They'll take her initial premium of $50,924.90 and subtract 11% and then show the result of $45,323.16.
The only problem with their calculation is the fact it's totally WRONG and doesn't jive with the stated MINIMUM CASH SURRENDER value printed in the policy of $52,340.26 at the end of year two (2).
The correct calculation goes like this:
Premium of $50,924.90 PLUS 10.75% first year interest equals an account value of 56,399.32 PLUS MINIMUM "Guaranteed Interest" of 3% equals an end of year two (2) MINIMUM account value of $58,091.30.
Now let's figure her actual MINIMUM cash surrender value end of year two (2) and see if my calculations match what's printed in the policy.
The first thing to understand is the fact most ALL annuity contracts allow a 10% "free withdrawal provision" per year. With that in mind, the calculation goes like this:
Account value end of year 2 equals $58,091.30, MINUS, the 10% "free withdrawal provision" equals, $52,282.17, that is subject to the withdrawal charge of 11%. $52,282.17 times 11% equals a surrender penalty of $5,751.04.
$58,091.30. (the MINIMUM account value) MINUS $5,751.04 (the correct surrender charge) equals a MINIMUM cash surrender value of $52,340.26. EXACTLY as it's printed in the policy!
So by the end of year two (2) the client could have cashed in her annuity and received back every penny she put into the contract plus some.
Question for Stock Brokers: Would you recommend an 80 year old widow cash out her annuity and risk her money in Stocks or Mutual Funds?
Question for Bankers: Would you recommend she put her funds in bank CDs that on average pay 1% to 2% less than her annuity?
Question for Attorneys: Would it be better for her to exempt her cash asset pursuant to Florida Statute 222.14 and pass the cash asset upon her death DIRECTLY to the named beneficiaries AND avoid Probate Court at the same time or should she pass it under her Last Will and Testament so you can collect your 3% share pursuant to Florida Statute 733.6171???
Fixed Annuity Data Page.Used with permission.
Fixed Annuity Surrender Page.Used with permission.
Posted: Sun Apr 20, 2008 05:32 am Post Subject:
Hey Gary, Yeah, you're right. It wasn't 40%. It was actually 39.6% and I bolstered it a bit. I have no worrries about anyone questioning this figure listed on my home page. Believe me; with all the time I've spent in depositions, it has been questioned many times by the most expensive defense teams money can buy.
Although I don't have the exact figures here in front of me, it's pretty easy to figure out.
First, take all the people who were involved in those big class suits against the insurance companies from 1983 to roughly 1998. Since you already have the Metlife and Prudential numbers, we'll add the 9.4 million New York policy holders, the 5.7 million John Hancock people, throw in Guardian, Aetna, Sun Life, Equitable, and Conseco for good measure.
Add all these policy holders up and divide by the total number of policies written during that same time frame (this information is available through NAIC) and hit enter. It comes out to 39.6%. C'mon, do you really think I could post something so detrimental to the insurance industry on a site that gets over 3000 hits a month and get away with it?
You are right again about the incredibly high turn-over rate in the insurance marketplace. If you've spent much time as an agent, you're probably flabbergasted with the fact that nobody seems to prospect anymore. Everyone wants leads!! Back in the old days it was different and agents cared about their policy retention rates.
To claim there are/were 10.7 million and 11.5 million DISATISFIED policyowners is just a little too high to be credible.
You know, I'm not sure how to answer this one so I'll fall back on Insurance Law.
Accept that class suits involve a large group of people who have been (not probably been) similarly damaged. We start by finding a dozen-or-so class reps. These, as you know, are the ones who are chosen to represent the masses.
Once the ways in which the class reps have been [similarly] damaged has been assessed, the "points" as they are called, are listed on a class complaint that must be certified by a court of law.
Once this has been done, an insurance company is required by the court to notify those people [who have been similarly damaged] in writing. Whether they do so is an entirely different story.
So, in short, the huge number of Metlife and Prudential victims were actually submitted to the court by the insurance companies - they, and no one else, picked out the number of victims. I know; the settlements were a joke.
No, I'm related to Jim and Don.
Posted: Sun Apr 20, 2008 12:16 pm Post Subject:
We start by finding a dozen-or-so class reps.
Well let's called it a bakers dozen (13) so we can understand the math.
Please correct me if WRONG. I want to make sure I understand how this works.
Snoopy from MetLife sells 10.7 million policies of whatever form to protect people from the little if in Life.
Out of that 10.7 million 13 are dissatisfied with "something" to the point of calling the law firm of Dewey, Cheatum and Howe for a free consultation.
Well, may I have a drum roll please......$$@#@$$@#@$$@#@$$@#@$$.
The Plaintiff's lawyers are very much interested in their "problem" for the right price. Say 35% of some multiple million dollar figure.
So at the end of the day 13 people got their money back PLUS a cut of the settlement for this perceived injustice.
But what about the "other" 10,699,987 harmed persons? What happens to them and their polices? Don't they count too?
No. They don't count; they are too stupid to even realize they were taken advantage of by some insurance policy that was approved for sale by the Department of Insurance in their home state.
Yep, when you get your little class action "settlement" notification make sure you send it back with a self-addressed stamped envelope to get your $1.95 of which you will only net $1.13 because you had to pay for the stamps.
Most of these type lawsuits are bogus and they NEVER see the inside of a court room because it's just simply less expensive to pay a negotiated settlement to the Plaintiff's lawyers than it would be to win in court.
Not to mention the video editing that's done by Chris Hansen and clueless Katie. But hey Katie only has 22 minutes to sensationalize her story. So let's not let the facts interfere with selling commercial time to the spoon-fed masses.
This thread is unreconizable from its original subject matter:
There is exactly one (1) negative feature in a Traditional Fixed Annuity or Fixed Indexed Annuity contract.
The SURRENDER charges.
Posted: Fri Apr 25, 2008 03:22 pm Post Subject:
I appreciate the information Gary.
The client's money isn't "invested" anywhere EXCEPT safe and sound with the issuing insurance company like any other FIXED annuity. The trade off is how excess interest is credited based on an outside market index such as the S&P 500.
How do you mean the clients money isn't invested anywhere? What specifically represents "safe" and "sound?" Are you saying the company doesn't take my money and combine that into their pool to invest?
Obviously the companies have their own investment teams, lawyers, etc., but I have a concern with anybody investing my money in an investment (e.g., sub-prime loans) whom doesn't have an established track record and can offer some sort of guarantee. It sounds like the minimum return solves one of those issues, but what about the others. As a prospective annuity buyer, would I be able to receive reports on the consumers track record, management team, credentials, etc.?
I see annuities being favored by older people interested in preserving their money while reducing risk because they don't have to invest the money themselves and pay fees, research companies and investments. The set it and forget it mentality comes to mind regarding annuities. I give XXX amount of my portfolio for an annuity and let it run it's course, while I do whatever I want with the rest of my money.
Posted: Fri Apr 25, 2008 09:52 pm Post Subject:
Hey Gary,
In my last post, I failed to thank you for the kind words
A spirited debate with an intelligent person.
Thanks for the benefit of the doubt.Please correct me if WRONG. I want to make sure I understand how this works. Snoopy from MetLife sells 10.7 million policies of whatever form to protect people from the little if in Life.
I would never accuse you of being "wrong" maybe just a little mis-informed. You are not alone; there are literally millions of highly educated, very sophisticated people who haven't a clue when it comes to life insurance fraud. Ironically, I spent a portion of my morning in a rather lengthy tele-conference with officials in the Investigations Division of the CA Dept of Insurance. "We" were learning more about things like Vanishing Premium Fraud and the IRS's Incidental Insurance Rule.
First of all, Snoopy is just a little cartoon dog that hangs around with Charlie Brown and supposedly battles the Red Baron from a post high atop his dog house. I'm absolutely positive that he is not licensed to sell insurance in any state.
There were just over 12,000 licensed agents who were selling insurance instead. These were the people who didn't seem to have the insurance-buying public's best interest in mind when they sold insurance products.
There is no question that 10.7 million people were involved in the MetLife case brought by some guys at Milberg Weiss because that was the number MetLife officials gave us. Just as there were 11.5 million policy owners involved in the Prudential scandal. There were actually a number of big companies that were sued in the 90s for Churning, Twisting, etc.
Secondly, nobody calls Dewey, Cheatum and Howe any longer because they do not exist. They are now called Dewey, Screwum and Howe. Michael Cheatum left the firm a couple years ago and was replaced by Deborah Screwum (formerly of the Lovelace firm in Dallas).
The fee is usually only 33.3% unless the case goes to trial. Very few of these types of cases ever go to trial because the company fears the publicity. In the nearly 15 years I've been investigating life insurance fraud; I've only seen one (1) case go to before a court.
But what about the "other" 10,699,987 harmed persons? What happens to them and their polices? Don't they count too?
Yes, they count as much as each of the class reps. By the way, you cannot imagine the extremes most people would go to in order to avoid being a class representative. That's not a place most people would choose to go.
Consider that the other 10,699,987 (your number) are made part of a suit they know nothing about. Most of them, let's say 80%, receive their package from the court and are made aware of their policy's status. Whether they elect to participate, opt out, or forget the whole thing is entirely up to them. In the eyes of the law, they were given the ability to make an informed decision on how they might proceed. When it comes to this notification, I'm with you 100%! I know it's bogus and very few people understand it. I chose to think of all the people who were informed and who were literally saved. These are the policy owners who would have had to cancel their policies because they could not afford the greatly-increased premiums, etc.
I certainly cannot claim that everyone can be helped, but then again, it's really just a numbers game. Those of us in the regulatory business try to help as many people as we can, by whatever means we have available.
In my opinion, the big insurance companies will never operate honestly because they can't afford to. The trick is to try to make sure as few people as possible get "taken."
Posted: Fri Apr 25, 2008 10:13 pm Post Subject:
Mark wrote:
Secondly, nobody calls Dewey, Cheatum and Howe any longer because they do not exist. They are now called Dewey, Screwum and Howe. Michael Cheatum left the firm a couple years ago and was replaced by Deborah Screwum (formerly of the Lovelace firm in Dallas).
Too funny.....
I just spritzed my monitor with a mouthful of coffee when I read that!
RE: salpro22
Don't have time right now but I'll answer your questions when I get back to this thread.
Posted: Mon Apr 28, 2008 11:55 am Post Subject:
salpro22 wrote:
How do you mean the clients money isn't invested anywhere? What specifically represents "safe" and "sound?" Are you saying the company doesn't take my money and combine that into their pool to invest?
No, I'm NOT saying that.
What I am saying is that a client's money IS NOT invested directly into Stocks or Mutual Funds that expose the principal to DIRECT market risk by the day traders playing stocks like a flea market swap meet.
See graphic below I found somewhere on the net. The worst thing that would result would be 0% interest credits for that policy year in a FIXED Indexed Annuity if the market was flat or went down.
And for some mathematical trivia, a 25% LOSS in one year will require a 47% gain the following year to just break even with a SAFE investment that's just limping along at 5% per year.
A "picture" is worth a thousand words.
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