Controversy continues regarding sales of deferred annuities–particularly deferred variable annuities to seniors (usually defined as those over age 70).

In recent times, regulators–including state insurance commissioners, the National Association of Securities Dealers and the Securities and Exchange Commission–have weighed in. And state attorneys general have brought actions against distributors for selling deferred VAs to seniors.

Much of the popular and financial media also has commented. The attitude here is hardly unbiased, given that many in the media tend to be consistently opposed to the entire concept of VAs. Few take the time truly to understand VAs, how they work and the necessary role they play in a comprehensive financial plan.

Many proposed regulatory solutions to the question of “how old is too old for the purchase of a deferred annuity?” tend to be simplistic. They seek a “one size fits all” answer–one that merely condemns any deferred annuity sale to a person over a specified age, regardless of personal needs, investment goals, state of competence and family history of longevity.

What is the concern? Deferred annuities, particularly deferred VAs, are not inexpensive. They carry fairly large annual charges and usually impose surrender charges in the event of distributions of cash values before the end of stated time periods. Thus, for some seniors, the costs and liquidity limitations may be inappropriate. An example would be the elderly who have liquidity needs and are unlikely to annuitize. Also, some regulators and others have said equity investments under a deferred VA may cause market loss to seniors who do not have a long enough time horizon to weather stock market fluctuation.

Yet, despite these concerns, some seniors clearly can benefit from the purchase of a deferred VA. This is not to defend unconscionable sales of deferred annuities to seniors unlikely to benefit from the product’s unique features. But neither should all sales of deferred annuities to seniors be condemned. Rather, we believe the intelligent use of deferred annuities, in particular deferred VAs, has a legitimate place in financial planning for seniors.

A significant cost element in a deferred annuity purchase, particularly a deferred VA, is for compensating the sales professional for analyzing the purchaser’s financial needs and making recommendations to satisfy those needs. This advisory function is essential in sales of complex financial products like VAs. So long as the advisor acts as a true professional by keeping client interest paramount to the advisor’s interest in obtaining commissions, it is possible to determine that a deferred annuity purchase is totally appropriate for some seniors.

At least one of us is rapidly approaching the age at which regulators think a person becomes “senior.” Despite this, we both believe the “senior” maintains his competence, his ability to analyze his financial needs and his ability to understand complex financial products.

Moreover, we believe situations exist where a deferred VA purchase may be completely appropriate for a “senior.” For instance: Assume a “senior” wants to invest in a manner that will have a good probability of growth. Further, assume the “senior” intends to pass on the fruits of this investment to his children or grandchildren at time of death with a minimum of market risk. The VA facilitates this, especially since most currently available VAs have death benefits that provide significant protection if the owner dies when the market is down.

What better way is there to take advantage of equity investments while ensuring you will leave at least your principal investment in event of death, while still having access to your money and the ability at some time to take a stream of income payments for life, all while having the benefits of continued tax deferral?

The VA industry always has been innovative in developing new products and features that enable any purchaser to use the products to meet long-term financial goals. Several insurers are offering products with front-end sales loads that enable a purchaser to avoid surrender charges that might otherwise limit liquidity, for instance. And most products allow annual withdrawal of specified amounts free of surrender charges. This can provide a senior contract owner with liquidity for unforeseen financial needs. Likewise, many VAs have other features that can help seniors meet goals short of full surrender of the contract.

Finally, an annuity is the only product that can ensure the owner will not outlive funds accumulated for retirement.

In our view, the consumer should be the one to determine when the lifetime distributions occur–not the regulators or attorneys general.

Further, regulators and AGs should not have the right to deny “seniors” the ability to purchase whatever products suit their particular financial needs, so long as the decision is based on complete information and an understanding of the ramifications. Seniors, as a group, are not simple minded, they are not necessarily incompetent and they should have the same rights as any younger member of society.

A simplistic “one size fits all” approach merely denies people the alternatives that may be necessary for them to reach their financial goals.

Norse N. Blazzard, JD, CLU, and Judith A. Hasenauer, JD, CLU, are attorneys in the Pompano Beach, Fla., office of Blazzard, Grodd & Hasenauer, P.C. Their e-mail address is Norse.Blazzard@bghpc.com.

We believe the intelligent use of deferred annuities, and in particular of deferred VAs, has a legitimate place in the financial planning process for seniors

What is the “right” age? A simplistic “one size fits all” approach that dictates the age until which seniors can buy deferred annuities denies them the alternatives that may be necessary for them to reach their financial goals.