Florida Insurance Scam Hits Seniors

Florida officials say hundreds of senior citizens were victimized by an organized scheme that netted more than $2 million in fraudulent insurance sales commissions. Attorney General Charlie Crist said five people were arested and charged with racketeering and multiple counts of insurance fraud, money laundering and grand theft. Insurance fraud investigators with the Department of Financial Services said licensed insurance agents were recruited to gain the trust of victims between the ages 70 and 94. Promising to save them money on their health insurance, the agents instead "slid" them life insurance applications. The sale of whole life insurance policies can net larger commissions. "These people preyed on senior citizens who needed help in making ends meet," Florida Chief Financial Officer Tom Gallagher said. "It is unconscionable that these individuals devised such an intricate scheme to take advantage of more than a thousand of our most vulnerable citizens." When the elderly victims learned they had purchased a whole life policy, investigators said, they were instructed to call one of the alleged ring members. Instead of receiving assistance, they were sent to another agent who maintained the scheme. "For many of the victims," Gallagher said, "the cycle would repeat itself over and over." Pioneer Life Insurance Company, one of the insurance companies with whom some agents were appointed, has refunded over $1 million to its customers. Those arrested were identified as Brian Lee Shechtman, 37, of Hollywood; Dean Allen Shechtman, 36, of Aventura; Brad Howard Shechtman, 33, of Miramar; Camille Martinez Shechtman, 30, of Miramar; and Rosemary O'Rourke Welstead, 61, of Ft. Lauderdale, are Brad and Camille Shechtman were booked into the Marion County Jail. The three others were booked into the Broward County Jail. Welstead and the Shechtmans, except for Brian Shechtman, have had their insurance agent licenses revoked. Brian Shechtman is prohibited from selling any new policies while his administrative complaint is pending. Brad Shechtman had his insurance license revoked in 1992 after he pleaded no contest to charges of felony grand theft and financial exploitation of the elderly. He was sentenced to five years' probation. Camille Martinez Shechtman's license was revoked in 1999 and Dean Allen Shechtman's license was revoked in 2003 for fraudulent sales of life insurance to the elderly. At the time, the two were selling policies for Elder Care Insurance Services, owned by Brian Shechtman. Investigators said they traced more than $1 million dollars in illicit life insurance proceeds to Brian Shechtman's brokerage accounts. Welstead's license was revoked in September 2003 for fraudulent sales of life insurance to the elderly. Investigators said that after losing their agent licenses, the group recruited licensed agents, friends and acquaintances, and even paid for tutors and insurance school tuition for recruits who were not already licensed. Some were paid a weekly salary in return for signing the fraudulent life insurance applications. Three agents recruited into the scheme have already lost their licenses. The department's Division of Insurance Fraud and Division of Agent and Agency Services, Bureau of Investigations, conducted the investigation jointly. The Attorney General's Office of Statewide Prosecution is prosecuting the charges.

If you want to sell more LTCi, my suggestion is to have access to all of the tools you need to make that possible. Team up with someone in your community who can write reverse mortgages, or learn how you can write them yourself! Below is a review of common myths and misconceptions about reverse mortgages in case you missed this column last month.

Common client myths and misconceptions about reverse mortgages

(a.k.a. Home Equity Conversion Mortgages):

The Lender will own my home. FALSE!

You, your family or estate continue to retain ownership of your home. The Lender does not take control of the title. The lender’s interest is only to the extent of the outstanding loan balance. As with a traditional mortgage they never have ownership in the property.

The Lender cannot wait for me to “get out of my house” so the lender can be repaid. FALSE!

The HUD approved Lender(s) are not in the business of selling homes. However, with the support of HUD they are in the business of helping seniors keep their homes and being able to use some of their equity to meet whatever financial needs they may have – without causing further financial difficulties by requiring a mortgage payment.

My heirs will be responsible for repayment of the loan. FALSE!

The Home Equity Conversion Mortgage is a Non-Recourse Loan, this means that the lender can only recover repayment of the loan from the proceeds of the sale of the property. If the property decreased in value and the loan amount was greater, the lender is paid the difference from the HUD Mortgage Insurance. Your heirs will not be responsible for the repayment of the loan

Home Equity Conversion Mortgages are very safe. TRUE!

FHA and FannieMae guarantee the payments that are made to you (not applicable to CASH Account option).You continue to own your home and are guaranteed that you can stay in your home as long as you like, AND…You (the Borrower) are guaranteed that you can never owe more than your house is worth. All of the above guarantees are further backed by the HUD Mortgage Insurance on HECM’s.

There are so many financial planning strategies that make sense when using reverse mortgages. Some times adult children of aging parents need just as much or more education than the seniors themselves. After all, this is a relatively new concept, and often seems to good to be true. The important thing to remember is that reverse mortgages (also called Home Equity Conversion Mortgages) are backed by the federal government, and protections have been put in place for seniors and their families.

Heirs need to understand that with proper estate planning, they stand to inherit more than the value of their parent’s home. A reverse mortgage is one way to make that happen.

The National Council on Aging supports and advocates the use of reverse mortgages for long-term care planning and for managing the crisis of long-term care. Obviously, there are times when a client will not qualify for long-term care insurance, but fortunately, if they are a homeowner, there are still ways that we can help them. That’s why it’s so important for you to know the basics about reverse mortgages. Anyone who serves the senior market should have access to this important financial planning tool. For the NCOA statement and press release go to www.ncoa.org and search for “reverse mortgages”. AARP is also a supporter of this federally backed program for seniors. www.aarp.com

Let's look at an example case scenario, with a client who wants to purchase long-term care insurance and life insurance.

Jane Smith lives in St. Louis, Missouri.

• 65 years old

• Owns a home worth $200,000

• Standard health rating

• 5 year plan

• Compound inflation protection

• 90 elimination period

• $150/day coverage- comprehensive

• Annual premium total for both to have coverage: $4548

Jane is eligible to receive a lump sum of $99,657.03, from the equity in her home. Jane will purchase a life insurance policy by paying a one time premium of $50,000.

• Jane leaves the remaining $49,657.03 in a line of credit that grows at 6.35% per year.

• She pays her annual LTCi premium from the line of credit every year.

This means that Jane will leave her heirs a death benefit of $222,736, plus the value of her home minus her loan balance. She will be protected from the catastrophic cost of long-term care, and will be able to stay in her home to receive that care.

You have now helped her heirs to receive a tax free inheritance that is worth more than the current value of her home.

Jane did all of this without touching a penny of her savings, investments, or current income. In fact, you handed her and her heirs the cash flow they needed to keep her safe for her remaining years.

Permanent life insurance lasts for the rest of your life. Whole Life insurance is what some people ask for, but let's be clear; what they usually mean is "permanent insurance." There are several types of permanent insurance and Whole Life is one of them.

Interest sensitive policies such as Universal Life and Variable-Universal Life are also permanent. The most expensive form of permanent life insurance is Whole Life and the least expensive form of permanent life insurance is Universal Life.

Any buyer of life insurance realizes after a couple of minutes that one of these is what they had in mind and that the rest are not. Some buyers may question the utility and cost of each of type, so I supply answers that illuminate the advantages and disadvantages of each in a search for the appropriate type of plan that fits that particular buyer's needs.

Searching for quotes on the Internet is best accomplished with the help of licensed agents because they can provide guidance and clarity, which comes with knowledge and experience.

Getting a quote is a good thing. But getting an agent who will clearly explain life insurance and help you find the right plan is a better thing. Want proof? Here's your quote: $358. Ok, now what? Would you buy that number? Of course not, since no one ever buys the number. What you buy is the coverage described in the plan. Coverage that is either right for you or isn't right for you. With a little help from an agent who can make the process simpler and clearer, you can be certain that your dollars are well spent on the right plan that will provide security for your family.

It's easy to see why many people think life insurance would be easier to buy if life insurance itself was simpler to understand. Consider the two major types of life insurance: Temporary and Permanent. Within these broad categories, you can choose from such products as Level Term, Decreasing Term, Whole Life, Universal Life, Variable Life, Variable-Universal Life, first-to-die, second-to-die, and so on. Life insurance policies can be customized with the addition of "riders" that reflect your individual circumstances and personal preferences. Moreover, life insurance companies use a form of legalese in the policies they offer because life insurance is a legal contract.

As if all the choices weren't enough, some agents, in an effort to be precise, use the same legal language to talk to non-industry individuals. For this reason, life insurance sometimes loses clarity from the first words of a conversation between an agent and a potential buyer. It's not the only reason, but its right up there at the top of the list. An experienced, successful agent is an active listener who identifies her clients' needs in order to present life insurance policies that offer the right coverage for each family's unique situation.

I consider myself a good agent because I try to be clear and factual, among other things. So, when I call a new client for the first time, I like to provide an easy-to-understand description of the two major types of life insurance.

There is temporary life insurance and permanent life insurance. Temporary life insurance is called Term Insurance and it lasts for a period of time: one to five to 10 or even 15, 20, or 30 years. The number refers to the period of time that the payments and the coverage are kept level. It's usually the cheapest form of life insurance.