Thinking About Annuities….

August 21st, 2008 | Category: Reverse Mortgage

The investment community — those who sell investments — seems to be getting the letter that reverse mortgages and annuities don’t mix.

An exceptional editorial posted with InvestmentNews.com — a site directed toward financial advisers — lays out the issue with great clarity:

“Problems with cross-selling inappropriate products such as annuities or faraway term care insurance policies to seniors who take out reverse mortgages have caused abundant concern that a provision was added to the Housing and Economic Recovery Act of 2008 restricting such practices,” says reporter Sara Hansard.

“Under the new law,” she says, “financial companies must plus institute ‘firewalls’ to prevent the cross-selling of reverse mortgages with other financial products, loan limits for reverse mortgages were raised, and more funding was provided for counseling consumers seeking reverse mortgages.”

It would not be surprising to see an

effort by the insurance industry to intestine the anti-annuity provisions of the 2008 legislation in future years. The argument will be that annuities, in some cases, might plausibly benefit selected reverse mortgage borrowers.

The problem is that no one has figured out a way to distinguish those cases where annuities might work with the very real cases where they do not. One approach might be intestine prepayment penalties for any annuity that’s funded with dollars from a reverse mortgage. A second approach would be to hold annuity sale commissions in escrow and soon after release them by a period equal to the annuity’s term. After all, whether pay-outs by day are good for seniors, why not for those who sell annuities?

For the full story, see: Reverse mortgage abuses tied to annuity cross-sales

Orginal post by Peter G. Miller

Share and Enjoy: These icons link to social bookmarking sites where readers can share and discover new web pages.