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  • Writer's pictureJerry Ipsen, CFE, MBA

Unsuitable Investments for Seniors

In the article “Annuities: Unsuitable Investments for Seniors” Keith Ellison, Attorney General for the State of Minnesota said by the year 2050, the number of seniors is projected to be nearly twice as large as it was in 2012. Since many seniors have been able to save up a nest egg for their retirement years, they are often targeted with fraud in a way that younger people with no savings are not. With billions of dollars in sales to be made, insurance companies may offer commissions as high as 10 percent to agents to sell products like long-term deferred annuities to senior citizens.  


In my opinion, one such insurance product in question is the Variable Universal Life (VUL) Policy.  Attorney David Meyer describes VULs as often “very expensive, offering poor investment choices and (often) fails to function as promised.”  VULs are typically invested in mutual funds, with the cash value and death benefit rising and falling with the market. Meyer suggests the problems arising from this type of investment are the high fees, risk of cash value loss and they often fail to achieve a positive return.


Keep in mind, variable annuities often carry hefty surrender penalties, which apply to withdrawals made within a specified time period after the annuity is purchased.  What makes this an unsuitable investment for seniors is that most surrender fees for universal life policies go away after 10 to 15 years. In fact, a Minnesota woman was sold an annuity with surrender charges lasting for 16 years, or until she was 95 years old, with the surrender penalty being 17 percent of her investment.


In his book, The Investor Protector” author David Meyer when talking about VULs discusses how investors are often asked to pay significant upfront premiums or pay (premiums) throughout the course of several years.  Investors are being assured (by the insurance broker) the VUL will ultimately pay for itself once the cash value grows to a certain value.  The problem comes when most investors having dumped considerable amounts of money into the VUL find out the cash value fails to achieve sufficient returns to even pay the premium.  The investor then must deposit more money into the policy beyond the stated premiums just to keep the policy afloat.  Oftentimes, the investor discovers this is not sustainable and is forced to surrender the policy at a loss.


Insurance products such as the Variable Universal Life Policy with a long surrender period is definitely not a suitable investment for seniors.  Those investing into these types of policies need to be concerned about both the return of principal and the return on the principal (ROI). 


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