Raleigh resident Rosalie Whittington was 80 and had dementia when an insurance agent sold her more than $200,000 worth of annuities designed to provide monthly income -- when she was 105.

An even larger investment, bought from the same agent during late 2006 and early 2007, was crafted to start paying off in monthly installments -- when the federal retiree was 90.

Skyrocketing annuities sales, totaling $24.8 billion nationally last year, are causing high levels of concern for state and federal regulators, as well as families of elderly investors, who may be effectively locked out of their own assets for decades at a time. Annuities are contracts between an insurance company and a buyer that provide income to the investor at a time set in advance.

"I personally would not recommend an annuity to someone of that age," said Mike Blawas, owner of Wakefield Financial Planning in Raleigh. "An annuity is a complicated product with very high fees and is usually only the right product for a very small percentage of investors."

In all, Whittington put more than $1 million -- carefully assembled from savings and investments since 1960 -- into a complex type of policy known as equity-indexed annuities. A regulators group calls these instruments "among the most pervasive products involved in senior investment fraud."

Edward Reinheimer, the Elon-based agent who sold the policies, denies any wrongdoing in the transactions, and the state Department of Insurance has declined to take action against him. However, two insurance companies that sold the policies returned Whittington's investments within weeks of receiving relatives' complaints via state regulators.

Whittington could have taken money out of the annuities before they started paying off, Reinheimer said. But, with narrow exceptions, early withdrawals would have brought additional fees and tax consequences, state insurance officials said.

"We don't make any claim that he's a good guy, but we don't go beyond our purview," said Chrissy Pearson, a spokeswoman for the state Department of Insurance. "In order for us to take action against someone, they have to have violated a law or a statute."

400 complaints

During the past three years, more than 400 North Carolinians have complained to the state about annuities sales and practices, insurance department officials said. Nationally, companies such as Allianz Life, one of those that sold policies to Whittington, are seeing more than a third of sales derive from annuities. Salesmen get commissions of as much as 8 percent to 10 percent on the policies.

Whittington's niece and financial guardian, Lynne Splawn, a real estate agent based in Raleigh, has spent 18 months dealing with the consequences of the purchases. Family members say the investments came to light only after Whittington ran into problems with her bank accounts and tax liabilities.

Insurance companies agreed to pay Whittington back with interest after receiving a doctor's opinion on Whittington's competence at the time of the sales.

"During the investigation of the complaint issue, Allianz Life received documentation from Ms. Whittington's physician, Dr. Phillip Ashburn, which stated she was not capable of making sound financial decisions at the time the policies were purchased," Nick Squires, a compliance analyst at Allianz, wrote insurance department investigators.

Since early last year, state prosecutors in Minnesota have won refunds of more than $125 million for thousands of seniors after settling lawsuits against Allianz and American Equity for using deceptive sales practices in selling equity-indexed annuities.

Because she cashed out longstanding holdings such as stocks and certificates of deposit to buy the annuities, Whittington was left without enough cash to pay the resulting taxes and fees, court records show.

"Who needs to have everything they have flushed into a 10-year annuity when they're 80?" Splawn asked.

Family dispute or not

Reinheimer, 47, contends the issue centers on a family dispute. The agent, whose clients have had premiums from companies returned at least five times after complaints to the state, said he met Whittington at a sales seminar at the Raleigh restaurant Casa Carbone in July 2006.

"She never showed any signs of incompetency," Reinheimer said of his client. "One of the nieces wanted to get control of the estate, and that's why all this came about."

Splawn hotly denies this charge, and family members back her up. In a meeting earlier this year, Reinheimer convinced state insurance regulators that his version of events was accurate.

"The Agent Services Division met with the agent and his administrative assistant on March 3, 2008, and determined that the Splawn complaint was based on a family dispute," insurance department official Etta Maynard wrote in a memo last month. "Additionally, concerns associated with the annuities involved a question of fact. ASD found Mr. Reinheimer and his assistant to be very credible."

Federal regulators and consumer groups are calling for stricter regulation of complicated annuity products, which have drawn increasing investments in the billions of dollars.

"This growth has, unfortunately, been accompanied by growth in complaints of abusive sales practices," the Security and Exchange Commission's proposal for increased regulation says. "These include claims that the often-complex features of these annuities have not been adequately disclosed to purchasers, as well as claims that rapid sales growth has been fueled by the payment of outsize commissions."

Without additional regulation, seniors and others who venture into complicated retirement investments do so at their own risk.

"Because this is such a complex product, a lot of times the people who purchase these types of products hear what they want to hear," said Pearson, with the state Department of Insurance. "We try to caution them and their family members about making these decisions. What may be right for one person at one age and situation might not be right for someone else."

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