Annuities

The president of Fi-Mark, a large, Woodland Hills-based marketing firm that sells annuities, was sentenced to 30 months in prison for defrauding his elderly relatives out of their life savings of about $415,500, prosecutors said. Frederick Stoutland of Palm Desert had pleaded guilty to cheating an elderly cousin and his wife by promising to invest their money in annuities--investments that are popular with retirees. He was sentenced in federal court in New York.

The Securities and Exchange Commission has found signs of possible sales abuses by insurance companies selling variable annuities, prompting it to initiate an unprecedented inspection of 13 insurers. "We want to take an even harder look at annuity sales practices in the industry and at companies' supervisory systems," said Lori A. Richards, head of the SEC's compliance inspections and examinations office. Aetna Inc., Travelers Group Inc., Equitable Cos. and American General Corp.

Variable annuities are growing faster than mutual funds, they're offering more and better investment features, and they remain one of the few tax shelters left. But they're not making much of an impression on do-it-yourself investors. How else can you explain the lackluster reception given to a slew of variable annuities introduced by mainstream no-load mutual fund companies in recent years?

How does this sound for an investment? It mimics a major stock market index. It promises a gain even if the market goes down. And it is tax-deferred. It is the equity-indexed annuity, and it is the latest wrinkle in the rapidly growing business of wrapping investments inside insurance to try to capture the stock market's heady gains while avoiding current tax. The market's performance, along with higher income tax brackets, have made these products an easier sell.

The imaginary wall separating banking and insurance crumbled a little more Wednesday when the U.S. Supreme Court ruled that national banks can sell insurance annuities in their branches. Bankers immediately predicted that the decision will spur rapid growth in insurance annuity sales by banks, which already sell between a fifth and a quarter of the nation's annuities. At the same time, consumer groups and insurers warned of potential risks in purchasing such products in banks.

Taking what they described as a significant step to protect senior citizens, state regulators have persuaded the biggest seller of annuities in California to promise to stop targeting the elderly with pitches allegedly designed to sell them pricey policies that could never pay off. The agreement between Allianz Life Insurance Co.

Is a tax-deferred annuity a good investment for you? If two insurance trade groups have their way, all investors will discuss that question with their insurance agents before buying. The American Council of Life Insurers and the Insurance Marketplace Standards Assn. recently announced a push to extend "suitability" protections to every consumer. These protections require insurance salespeople to consider an investor's time horizon, assets and goals before recommending an annuity.

John M. Rau would like to make a big donation to charity, but the 80-year-old Orange resident is concerned about impoverishing himself by giving away too much of his money before he dies. One solution: a charitable gift annuity. These annuities allow donors to give away a substantial asset with a string attached. In exchange for the gift, the charity will promise to give back a set return on Rau's money for as long as he lives. And that return handily beats deposit rates.

What is an annuity? Annuities are insurance contracts. Buyers typically contribute a lump sum and pay no taxes on the investment gains or interest until they tap the money years later. The term traces its origin to ancient Rome, where citizens paid a lump sum for a contract that promised an \o7annua\f7, or yearly payment, for life. What are the different kinds of annuities? There are two main types: fixed and variable.

Maydeen Tharp wanted a living trust. She wound up buying a $230,000 annuity. Tharp, a widowed homemaker, had invited an insurance man to her home in Upland to get her estate in order. The salesman shifted the conversation to a different subject: annuities. Then he asked whether they could move outside to the back patio, so her cats wouldn't trigger his allergies. The salesman talked for hours. The November afternoon grew cold and dark. Finally, Tharp gave in.