Thinking About Annuities….
August 21st, 2008
- None Found
The investment community — those who sell investments — seems to be getting the message that reverse mortgages and annuities don’t mix.
An exceptional article posted with InvestmentNews.com — a site directed toward financial advisers — lays out the issue with great clarity:
“Problems with cross-selling inappropriate products such as annuities or long term care insurance policies to seniors who take out reverse mortgages have caused enough concern that a provision was added to the Housing and Economic Recovery Act of 2008 restricting such practices,” says reporter Sara Hansard.
“Under the new law,” she says, “financial companies must also institute ‘firewalls’ to prevent the cross-selling of reverse mortgages with other financial products, loan limits for reverse mortgages were raised, and more funding was provided for counseling consumers seeking reverse mortgages.”
It would not be surprising to see an effort by the insurance industry to gut the anti-annuity provisions of the 2008 legislation in future years. The argument will be that annuities, in some cases, might plausibly benefit selected reverse mortgage borrowers.
The problem is that no one has figured out a way to distinguish those cases where annuities might work with the very real cases where they do not. One approach might be gut prepayment penalties for any annuity that’s funded with dollars from a reverse mortgage. A second approachÃ‚would beÃ‚to hold annuity sale commissions in escrow and then release them over a period equal to the annuity’s term. After all, if pay-outs over time are good for seniors, why not for those who sell annuities?
For the full story, see: Reverse mortgage abuses tied to annuity cross-sales