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The nightmare before Christmas

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Instead of doing my normal sales and coaching calling this month, I think I?? 1/2 d rather go ahead and share with you a Christmas story. A tale that will hopefully help some of you realize that we need to make changes in our industry.

Have you wondered why the regulators are coming down on us? The following example is exactly the reason why.

This is a story of an older couple in the state of Arkansas. When the man was about 85 he was diagnosed with terminal cancer. His 82-year-old wife was in decent health but had slight Alzheimer?? 1/2 s. They owned annuities, which were about halfway through the surrender period with a couple of excellent companies.

An agent contacted them one day, we?? 1/2 ll call him Sam, who represented an insurance company from Texas. Sam convinced them to close out their existing annuities, take a penalty, and then put them into another product with a moderate-to-small bonus.

Sam knew that this client was on his deathbed. If he would have kept his original annuities, they would have paid out full account value at death. But oh no, Sam rolled them out anyway into a product with a 25-percent surrender charge. Yes, 25 percent! Five months later, the 85-year-old man died. The annuities were not in the man?? 1/2 s name because the agent had him close out the annuities and put the new annuities in the wife?? 1/2 s name. He did this because she was younger and probably paid higher commission.

The new annuities were not Medicaid friendly ?? 1/2 they did not have any nursing home riders on them. Three years later, the woman developed Alzheimer?? 1/2 s so bad she had to go into a full convalescent center. Because the annuities were in her name and not Medicaid friendly, they could not be annuitized for Medicaid provisions. She is unable to apply for a veteran?? 1/2 s benefit and she can?? 1/2 t apply for Medicaid. Therefore, she has to start taking distributions out of these policies to pay for the nursing home. I don?? 1/2 t know about you, but I think any product which has a 25-percent penalty must have a huge, huge, huge commission up front ?? 1/2 that?? 1/2 s why the penalty is so severe.

I don?? 1/2 t know how you justify selling an 80-something person a product with those kinds of charges, closing out an annuity when somebody?? 1/2 s on his deathbed and putting the new one in the healthy spouse?? 1/2 s name. How can you do it? If you can figure it out, please let me know. But we can?? 1/2 t annuitize this contract for another eight months ?? 1/2 August of 2008. We can?? 1/2 t do anything with this because we?? 1/2 re within the 5-year must-hold period.

It?? 1/2 s the perfect example of why regulators get mad. There?? 1/2 s no justification in doing any of this ?? 1/2 closing out a good annuity paying a decent interest rate to move him into something that doesn?? 1/2 t have any death benefit. If the client died today, the children would still have to leave this contract in force for the full 5 years and then take a 5-year payout before receiving the full account value.

This is atrocious. We should look only at companies with client-friendly products that have no surrender charges at death. I know these products don?? 1/2 t pay huge commissions, but in the long haul we all benefit.

We have been using these types of products for our Veterans Benefit Program and they have worked wonders. After the clients pass away we are retaining over 70 percent of the assets and reinvesting for the kids, who by the way are all over 55.

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