An annuity is a type of insurance product in which an insurer, in exchange for charges (akin to premiums), makes a series of income payments at regular intervals over a set period. Senior citizens and other consumers often obtain annuity coverage for use as future retirement income. Because nearly $15 trillion dollars is invested by people over the age of 50 in this nation, the senior population is very dependent on their investments yet susceptible to dishonest investment practices. It is estimated that Americans lose about $10 billion dollars each year in fraudulent investments.

To protect vulnerable consumers from predatory annuity sales, Governor Corzine recently signed legislation that addresses issues regarding the marketing of annuities, particularly to senior citizens.

The bill, A2252/S1165, also known as the predatory-annuities-prevention-act, provides certain requirements for marketing, information disclosure and product suitability. It prohibits those who sell annuities from falsely representing their expertise on marketing materials. Under the new law, unsubstantiated claims of expertise could result in loss of license. In addition, annuities salespersons are required to fill out disclosure forms that clearly outline the important facts of the purchase to the buyer, the investment objectives as well as contract terms. The buyer then has a 10-day right to cancel with no financial penalty.

“This bill will prevent unscrupulous insurance brokers from using inaccurate puffed up titles such as ‘elder financial expert’ to describe themselves when selling annuities to seniors.  It will also require a higher level of real disclosure to seniors so that they can be better informed when planning for their futures”, said Department of Banking and Insurance Commissioner Steven M. Goldman.

Specifically, the bill prohibits an insurance producer or an agent and others involved in the sale of annuities from using a certification, professional designation, or form of advertising expressing or implying that the person or entity has any special education, training, or experience in connection with advising or servicing senior citizens or retirees.

In addition, the bill requires the Commissioner of Banking and Insurance to approve a standard document to serve as an annuities buyer’s guide. The buyer’s guide shall include a description of various kinds of annuities, standard features of annuities, and information concerning the negotiation and sale of annuities. The bill also directs the commissioner to provide regulatory approval to the standard form of an annuity contract disclosure statement to give the consumer highlighted information concerning a particular annuity.

The bill prohibits an insurance agent or insurer from negotiating or selling an annuity to a consumer unless the agent or insurer has reasonable grounds for believing that the annuity is suitable for the consumer.The bill also  requires that the annuity include a 10 day cancellation period, and requires that the insurer issue an annual report to the owner providing information about the annuity, including the total charges provided for the annuity, any amount charged against the annuity’s contract value, and the amount owed on any outstanding loan.

“Residents looking to invest for their retirements deserve every assurance that their hard-earned money is being handled by trained and certified financial experts,” said Assemblywoman Linda R. Greenstein (D-Middlesex/Mercer). “Protecting residents from receiving bad advice from bogus advisors is essential, especially in these times of financial uncertainty.”