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Jeanne and Anthony Trotta were in their 80s when they bought $150,000 worth of annuities in 1998 from Michael Minnehan, an insurance agent in their hometown of Milford, Mass. Minnehan told them the annuities would do better than a savings account. They might have, if the money hadn't been stolen.

A few years after the annuities were issued by Jackson National Life, the state Department of Insurance revoked Minnehan's insurance license following fraud allegations. He nonetheless continued to represent himself as an agent, the policies were surrendered and he pocketed a big chunk of the proceeds.

There are several ways for agents to cheat. In some cases they fail to pass along premiums to insurers. In others, they pilfer funds from the cash value of a policy or surrender a policy and keep the proceeds.

"Premium scams are a constant and widespread problem that likely will grow worse in this nightmarish economy," says James Quiggle of the Coalition Against Insurance Fraud. "Most [agents] are honest, but bilking vulnerable clients can mean easy money some just can't pass up."

Who eats the loss? That depends on the agent and the specifics of the crime. If the misbehavior is by a captive agent (one representing only one insurer), the insurer generally has to make victims whole. If it's by an independent agent (one, like the Trottas', selling policies from several insurers), clients can get stuck. A state guarantee fund will protect policyholders (up to certain limits) if their insurer goes under. Victims of fraud are left on the hook unless an insurer chooses to or is legally responsible for compensating them, or if the agent is able to pay restitution.

Six years after the Trottas bought their annuities, Anthony died. Jeanne was told by Minnehan the funds from her husband's annuity would transfer to hers. In 2006 she decided to surrender her annuity and tried to contact Minnehan.

She received a letter signed by his son that said Minnehan was ill with cancer and his affairs on hold. "Please bear with the situation," the letter pleaded. Several apologetic letters followed, along with financial statements from a New Jersey agency to which the Trottas' account supposedly had transferred. The Trottas' daughter, Kathy Jeanne D'Alessandro, reviewed statements her mother had received between 2004 and 2006. She realized they were frauds and Minnehan had never sold or transferred accounts from his agency to the New Jersey firm.