In an effort to protect seniors from fraudulent investments, Congress added a federal grant proposal to a high-profile Senate bill last week.
According to Jennifer Liberto of CNNMoney.com, the proposal would “set aside $8 million for states that bulk up oversight,” equaling up to $500,000 per state to investigate and prosecute shady dealings against seniors. However, the states must agree to bring their current laws up to national consumer protection standards.
The proposal, which focuses mainly on annuity sales, is driven by Senator Herb Kohl, D-Wis., chairman of the Special Committee on Aging. Kohl intends to use the federal grants to encourage states to make the move towards tougher laws — a move that has lobbying group, the American Council of Life Insurers, hoping for a different approach.
“It seems like what he’s attempting to do is going to set too high a bar for the states to cross,” said spokesman Jack Dolan of Kohl’s plan.
The proposal comes on the tail end of huge increases in the annuities market. According to the Insurance Information Institute, sales of fixed annuities increased 50 percent in 2008. Due to the economic downturn, seniors have been putting their money into life insurance products, often without fully understanding the consequences.
“The policyholder has to become an expert to ever get the message,” said Joseph Belth, an insurance professor emeritus at the Indiana University Kelley School of Business. “In the case of some annuities, the people selling them do not understand them, let alone the people buying them.”
Regardless of the mixed emotions involved, the future of the proposal looks bright: “The proposed tougher oversight of annuities is poised to make a big leap forward because it’s hitching a ride on high-profile regulatory reform legislation — a top priority for the Obama administration,” said Liberto.