Annuity Sale at a Free-Lunch Seminar

The recommendation is poorly matched to Ruth's facts. She is 79, needs $1,500 per month of income, has no long-term care coverage, and may need liquidity for assisted living within two years. A 10-year annuity with a 9% surrender charge is illiquid during exactly the period she may need the money. The 6% bonus does not make the product risk-free: the insurer can recover the bonus through lower crediting, fees, or a bonus recapture provision, and a surrender in year two could cost principal. The 1.25% annual fee further reduces returns.

The suitability form is inaccurate. Marking 'income need: low' and 'time horizon: 10+ years' conflicts with Ruth's stated income need and possible move. Excluding the daughter, who holds a power of attorney, is a serious red flag, especially for an elderly client. Kevin's statement that she 'cannot lose money' is a misrepresentation if she can lose principal through surrender charges or market-linked crediting. The commission difference between the 10-year annuity and the 3-year MYGA creates a conflict of interest that must be disclosed and managed. The free-lunch seminar may also trigger state marketing rules. This looks like an unsuitable sale, not just an aggressive recommendation.

Kevin should stop and complete a proper fact-find with Ruth and, with her authorization, the daughter. He should verify the scope of the power of attorney and whether the daughter must be involved in the transaction. He should document Ruth's income needs, liquid reserves, health status, long-term care risk, time horizon, risk tolerance, and the likely assisted-living expense. He should compare alternatives: keeping CDs or a ladder, a 3-year MYGA, a short-surrender annuity, an immediate annuity for income, and a smaller allocation that preserves liquidity.

He must disclose the surrender schedule, bonus recapture, fees, crediting method, guarantees, and his commission in plain language. He should not say 'cannot lose money.' If Ruth still wants an annuity, Kevin should recommend a suitable amount, not put nearly all of her liquid savings into one 10-year contract. The suitability form must reflect the actual facts. A supervisor or principal should review the sale because of Ruth's age and the power of attorney. If the product is unsuitable, Kevin should not submit the application. If he does submit it, the file should show the comparison, the disclosure, the daughter's involvement or Ruth's informed refusal, and the rationale for the recommendation.

A year-2 surrender could trigger the 9% surrender charge, subject to the contract's declining schedule. On $280,000, that could be about $25,200, and the insurer may also recapture all or part of the 6% bonus. Ruth could receive less than her original principal, lose the CD interest she gave up, and owe tax on any gain. The liquidity she needed for assisted living would be reduced at the worst possible time.

Kevin may face errors-and-omissions liability and licensing discipline for an unsuitable sale, misrepresentation, and failure to involve the power-of-attorney daughter. The insurer may face liability for inadequate suitability review or supervision. The daughter can complain to the insurer and the state insurance regulator and may seek restitution. Ruth should request the surrender calculation and the suitability file before surrendering. The insurer should preserve the recorded seminar materials, the application, and Kevin's notes. The existence of a signed suitability form does not protect the producer if the information on it is false or contradicted by the client's known circumstances.