Since investing can be a risky business with investments dropping in value from time to time, investors seeking steady income with minimal risk are sometimes attracted to an annuity’s guaranteed-income feature. Â A recent case from the Western District of Virginia, however, illustrates why an investor should first research whether an annuity is the right choice for his investment portfolio before choosing to go the annuity route.
In Hart v. United of Omaha Life Insurance Co., 2014 U. S. Dist. LEXIS 163033 (W.D. Va. 2014), the District Court refused to permit a conservator of an elderly annuitant to terminate her annuities before all benefit payments had been made.
In Hart, the adult daughter applied for and purchased two single-premium immediate annuities, both of which listed her elderly mother as the owner and both the daughter and mother as joint annuitants. About four years into the lives of the annuities, an attorney appointed as the mother’s conservator sued the insurance company seeking to cash and terminate both annuities before all benefit payments had been made pursuant to the annuity documents. The conservator complained that these annuities were non-compliant under Medicaid guidelines and prevented the mother from receiving Medicaid benefits. He requested the immediate surrender and full payment of both annuities for use in support of the mother’s needs and medical care.
Both annuity policies stated on their cover pages that: the insurer agreed to make the annuity benefit payments pursuant to the payment schedule provided; each annuity policy represented a legal contract between the owner and the insurer and should be read carefully; and if the owner was not satisfied, he could return the policy pursuant to the policy’s 20-day “free-look” provision for a full refund and cancellation of the annuity. Specifically, the annuities set forth the benefit payment schedule beginning with the initial payment date, payable on a monthly basis for a set number of years or upon the death of the last annuitant, whichever occurred later. Both annuities stated that the applicant elected in the application the benefit payment option selected; that the selected benefit payment option and payment schedule could not be changed; and that the annuity would terminate upon the satisfaction of all of the requirements of the benefit payment option selected.
Based upon its review of the annuity policies, the Court found that the annuities had no cash value and were not subject to early termination.
In sustaining the insurer’s motion to dismiss, the Court ruled that both annuity policies clearly stated their terms and that both annuities contained the required 20-day “free-look” period. Further, the Court applied to these annuities the well settled rule that an applicant for an insurance policy is charged with notice of the statements contained in the underlying contract which, in this instance, were the annuity policies.