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?
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
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.