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This blog originally appeared on NAIFA.org. It is reprinted here with permission of NAIFA.

It’s unfortunate when an isolated event could threaten the legitimate use of a financial product that has benefited and will continue to benefit so many individuals and families across the country.

Individual annuity contracts have paid more than $45 billion in benefits in 2010, providing Americans guaranteed income for life and helping them plan for their retirement. A significant portion of this total came from indexed annuities.

Yet, media coverage of the case of Glenn Neasham, a California insurance agent convicted of theft for selling an indexed annuity to an 83-year-old woman who prosecutors allege showed signs of dementia, has raised questions about the future of indexed annuities and the ability or willingness of agents to sell them.

Tax-deferred retirement products, like annuities, Individual Retirement Accounts and 401(k)s, are the bedrock retirement products for the middle-income Americans, and indexed annuities are legitimate products that suit the financial needs of many investors. With the uncertainty inherent in equity markets and the prolonged depression of interest rates, indexed annuities have grown in popularity among consumers clamoring for stability and a guaranteed return in their retirement. Especially popular are the products’ protection of principal, guaranteed minimum interest rates and ability to benefit from market gains.

There are many instances in which indexed annuities are perfectly suited to fulfill the financial needs of consumers of all ages, including senior citizens. We can’t speak specifically on the merits of the Neasham case, but to address the infrequent occasions when unscrupulous salespeople have used annuities to scam unwary investors, NAIFA strongly supports a pair of NAIC model regulations that bolster consumer protection.

First, the Annuity Disclosure Model Regulation standardizes the product information insurance companies give to annuity customers and ensures that the disclosure materials are clear and comprehensive. The regulation requires customers to receive an annuities buyer’s guide, along with information on the riders, early withdrawal penalties and tax treatment associated with any annuities they purchase.

Second, the NAIC’s Suitability in Annuity Transactions Model Regulation requires advisors who sell annuities to receive special training and requires them to collect information from a potential annuity client, including the client’s financial situation, tax status and investment objectives. The advisor must then analyze this information to ensure that the annuity being sold suits the needs of the client. Insurers also are held responsible for ensuring that any annuity transaction is suitable based on the collected information from the client.

NAIFA encourages insurance departments in all states to adopt both of the model regulations.

Help Is Available

Annuities can seem complicated to many investors, so that’s why it’s important for annuity customers to ensure they are dealing with professional, licensed advisors. An advisor can explain the differences between fixed, indexed and variable annuity products. An advisor can also address consumers’ common questions about annuities, such as potential tax benefits, investment options, payout options (including options that allow a client to receive an annuity and still provide for heirs), and limitations and restrictions.

Several online resources also are available:

CNNMoney’s “Ultimate Guide to Retirement: Annuities”Answers to 36 common questions about annuities, including sections on fixed, indexed, and variable annuities.

The Earl E Bird blog–clever, easy-to-understand and entertaining blog for people who don’t mind learning about financial products from a cartoon duck.

The Securities and Exchange Commission Annuities page–The SEC regulates the sale of variable annuities.

The American Council of Life Insurers Annuities Page–Available publications include: “A Woman’s Guide to Annuities,” “Individual Annuities: Tips for Seniors,” and “Consumer Tips for Buying a Variable Annuity.”

Annuities: Creating Guaranteed Income for Life”–a publication by NAIFA, ACLU, AALU and NAILBA.

 For more on the Neasham case, read: