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law offices of merwyn j. miller
191 calle Magdalena, suite 270 ē encinitas, San Diego County, ca  92024 ē 760-436-8832

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   Insurance Agents and Veterans Benefits

Introduction
The Problem
Insurance Agents Providing Non-Insurance Services
Medi-Cal Need Not Considered
Options Beyond Annuities
Surrender Charge
VA Accreditation
Insurance Agent Regulation Against Senior Abuses
Conclusion



Dear Mr. Miller:

Introduction: My Dad recently purchased a $150,000 annuity to help him qualify for the Veterans Aid & Attendance benefit. It pays him about $1300 a month. He did qualify and receives a check from the VA for around $1700 per month. The insurance agent who sold him the policy made a presentation at his assisted living community about VA benefits and helped him fill out the VA application and apply. That was 13 months ago.

The Problem: But now he is in a skilled nursing facility and needs Medi-Cal to help him afford the monthly fee of $10,000. The $1300 per month is simply going to go to the facility with Medi-Cal paying the rest. The VA benefit is going to drop to $90 per month. It seems to me that this plan didnít really accomplish a whole lot (except to line the insurance agentís pocket as he got a very good commission).

I have checked and the charge to cancel the annuity is astronomical (about 15%)!

Is there anything I can do?

Distressed Daughter


Dear Distressed:


Insurance Agents Providing Non-Insurance Services:
There has been a significant amount of discussion lately about insurance agents providing non-insurance services in order to get a foot in the door of the prospect. I wasnít privy to what was said during this agentís presentation to your Dad and whether you were there or not. Nor do I know any of the other details of the transaction. So the sale of the annuity may have been above board----or it may have been very underhanded.

Medi-Cal Need Not Considered: However, it appears that the potential Medi-Cal need was not considered in the slightest in putting together the strategy. The only issue considered was obtaining the VA benefit. This was a very short sighted approach and is often the result when insurance agents are consulted on, what is in essence, a legal matter. I have no problem having insurance agents involved (and I have worked with many insurance agents over the years) as long as an attorney who is independent of the insurance agent is running the show (and not the other way around).

Options Beyond Annuities:
Annuities can be useful and are sometimes an option with Medi-Cal. However, they are not the only solution and most experienced attorneys would have considered the Medi-Cal issue and suggested several options to qualify your Dad for the VA benefit and the later Medi-Cal benefit without the need for an annuity. Just so you know, the VA benefit drop to $90 almost always occurs when Medi-Cal starts paying and the applicant is not married.

All that being said, this agent may well have broken a number of laws. And if he did, that gives you the potential for backing out of the deal without paying that exorbitant cancellation charge.

Surrender Charge: First, letís define what that cancellation charge is. It is technically called a surrender charge. It is the insurance companyís way of getting their money back. Remember, no one works for free. This insurance agent got paid a commission from the insurance company. If the company now were to give your Dad back his money, it would be out the commission it paid. It wants that money back and this is handled via the surrender charge. Why is it so high? Probably because the agentís commission was sky high. Many annuities are sold for around a 5% commission. And the surrender charge on those would typically be much less. So a high surrender charge usually means a high commission was taken (without regard for the potential need to cancel.)

VA Accreditation: First, if he was involved in helping your Dad complete the application he needed to be accredited by the VA. One can check a personís accreditation on the VA website. While the VA does not have a significant enforcement arm for these types of violations, they do refer to the appropriate state Attorney General and you could make a complaint on this basis to the California Department of Insurance.

Insurance Agent Regulation Against Senior Abuses: To prevent these types of abuses and give some teeth to protecting seniors, two new laws went on the books this year. One was in existence in slightly different form before January 1, so you might still be able to make use of it.

One is Insurance Code 789.10(b). It applies to insurance agents entering the home of a senior in order to sell life insurance or annuities or to generate leads for the sale of these products. Certain written notices must be given the senior and these notices must be given at least 24 hours in advance (and no more than 14 days in advance). The notice has to be in large type (minimum of 16 point bold). Amongst other things, this document indicates that the senior has a right to have other people attend the meeting, including family members. Interestingly, the assisted living community where the insurance agent came to talk was your Dadís home. It is unlikely that the agent gave the notice and, although he was coming to give a presentation on VA benefits, his purpose was most likely to generate leads for insurance sales. So this, too, was probably a violation of law and something you could hang your hat on when you file a complaint with the Department of Insurance.

And then there is Insurance Code 785.4(a). This statute makes it unlawful for an insurance agent to deliver to a senior a legal document (other than an insurance document) in order to sell an insurance product. I would think that a delivery of a VA application is a legal document and without question, I would think that the purpose of the agent in delivering that document was to sell an insurance product. Another potential hang your hat on violation.

Conclusion: Because of these new laws, many assisted living facilities have stopped having insurance agents make presentations at their communities. Hopefully, a discussion with this insurance agent and the pointing out of the violations will start a dialogue on resolving your Dadís problem.

 

May 2013

   
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