The saga of Glenn Neasham has elicited passionate responses on both sides of the aisle. A word that gets thrown around when discussing his sale of the MasterDex 10 Annuity from Allianz (MasterDex) to a then 83-year-old, dementia-stricken Fran Schuber is “fair”. You are either of the belief that what Neasham did to Schuber was unfair or what prosecutors did to Neasham (convicting him of criminal theft of the elderly) is. What certainly is not fair to either Neasham or Schuber is that people both inside and outside the industry are discussing, lobbying and decision-making “without knowing a hell of a lot about what is going on,” as annuity expert Jack Marrion said.
The MasterDex Annuity from Allianz was cleared and sanctioned by the California Insurance Department to be sold to someone up to age 85. In Allianz’s own parlance, it is “designed for someone who is interested in accumulating funds on a tax-deferred basis for a period of five or more years and then taking the money out in periodic payments for ten or more years up to their lifetime. The MasterDex is also used by consumers who do not intend to ever access the money themselves, but whose objective is to accumulate funds to be transferred to beneficiaries.”
The Nuts and Bolts
The MasterDex first issued in May of 2004, and works like most any equity-indexed, fixed annuity product. A contract is drawn up between the owner and, in this case Allianz, and premiums begin to be paid to the insurance company. With the MasterDex, upon purchase you receive a 10% bonus on premium received for the first five years (hence the 10 in its title) and the annuitant can then receive indexed interest based on changes in either the S&P 500 or the NASDAQ 100. The product prides itself on facilitating the accumulation of funds, and when the market moves up, the value of your MasterDex increases. Annuitants are able to “get full 100% participation in potential monthly gains” subject to an established monthly cap.
Being able to access their money if a tragedy strikes is a feature that customers look for and the MasterDex allows customers after 12 months to withdraw 10% of their total premiums without a surrender charge or market value adjustment. Owners are able to do so until they withdraw 50% of their total premiums. So, if Fran needed the money to pay for a stay in a long-term care facility or in a hospital, she would have been able to access it.
After five years of paying premiums to Allianz, annuitants are able to receive the full value of their investment vehicle by choosing an income stream over the lifetime of the annuitant or lasting 10 years or longer. There are myriad options for annuitants to receive payments, from interest-only payments to installments guaranteed for a period of 10 to 30 years. Annuitants can choose to receive installments for life, where one would receive payments in equal installments for the remainder of their life or bring in joint and survivor.
One need not assume that Fran, under the advisement of her then boyfriend, was not planning on taking payments until she was 113. Fran most likely would have named a beneficiary when her health and her mental faculties took an even sharper turn for the worse. In which case, the MasterDex provides a death benefit (which it should be noted cancels out surrender charges) payable to the beneficiary and if it is taken over the course of five years, the payments would be based on the contract’s full annuitization worth. If the beneficiary were to decide to access the investment vehicle as a lump sum, the death benefit would equal the sum of the premiums paid less withdrawals or the cash surrender value which equals 87.5% of all premiums paid minus withdrawals accumulated at an annual rate of no less than 1.5%.
The product also contains a rider which allows the named beneficiary to receive the death benefit tax free up to 28% taxable gain although there is a charge for the rider to be installed.
The California Insurance Department looked at the intricacies and the qualities of this product and decided it was suitable to be sold up to age 85. Allianz looked at the individual and decided that Fran was a good fit for the product. But because Glenn Neasham could not or did not conclude that Fran had dementia, he has been forced to bear sole responsibility for the sale.
Industry Expertsí Input