Amended in Assembly April 30, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2347

Introduced by Assembly Member Gonzalez

February 21, 2014

An act to amend Sections 786, 10127.9, 10127.10, 10127.13, and 10509.6 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2347, as amended, Gonzalez. Insurance policies.

(1) Existing law requires that a disability insurance policy or life insurance policy and certificate offered for sale to individuals 65 years of age or older in California provide a 30-day examination period during which the applicant may return the contract and receive a refund of all premiums and any membership fee paid. This information is required to be disclosed on the cover sheet of the policy or certificate, in no less than 10-point uppercase type. Existing law allows the applicant to return the policy or certificate by regular mail.

This bill would specify that those requirements apply to individual and group disability and group life insurance policies and certificates. The bill would require that the notice be in 12-point bold type begin insert on the front of the policy jacket or on the cover sheet of the policy or certificate end insert . The bill would allow the policyholder or certificate holder to return the policy or certificate by mail or other delivery method. The bill would also require an insurer, its agent, group master policyowner, or association that collects more than one month’s premium from an individual who is 60 years of age or older on the date he or she purchased the coverage to provide that person a prorated refund of the premium if the person delivers a cancellation request during the first 30 days of the policy period.

(2) Existing law requires a policy of individual life insurance that is initially delivered or issued for delivery in the state on and after January 1, 1990, to have printed thereon or attached thereto a specified notice of cancellation rights.

This bill would require that disclosure to be printed on the begin insert front of the policy jacket or on the end insert cover page of every individual life insurance policy and individual annuity contract.

(3) Existing law requires specified disclosures, in all capital letters, pertaining to cancellation and refunds, to the consumers of variable individual life insurance policies and variable annuity contracts, and of consumers of individual life insurance policies other than variable contracts and modified guaranteed contracts. Existing law requires an insurer to include in those disclosures that the applicant may be charged a surrender charge or penalty if he or she cancels the policy after the 30-day period, unless the policy does not contain surrender charges or penalties.

This bill would additionally require that those disclosures be included with a modified guaranteed annuity contract, and would instead require that the disclosure be made in lowercase type. begin delete The bill would instead require the disclosure pertaining to a surrender charge or penalty to be included only if the policy contains a penalty. end delete begin insert This bill would also require an insurer that calls a surrender charge a “withdrawal penalty” to disclose that fact, as specified. end insert

(4) Existing law requires all individual life insurance policies and individual annuity contracts for senior citizens that contain a surrender charge period to either disclose the surrender period and all associated penalties in 12-point bold print on the cover sheet of the policy or disclose the location of the surrender information in bold 12-point print on the cover page of the policy or printed on a sticker that is affixed to the cover page or to the policy jacket.

This bill would instead require those policies and contracts to disclose the location of the surrender charge, surrender charge period, and surrender charge information and associated penalty information in bold 12-point print on the begin insert front of the policy jacket or on the end insert single cover page of the policy begin delete that end delete begin insert , which would end insert also begin delete contains end delete begin insert be required to contain end insert any statutorily required notice regarding a right to examine.

The bill would also make conforming changes.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 786 of the Insurance Code is amended
to read:

786.  

All individual and group disability insurance policies and
certificates, and all group life insurance policies and certificates
offered for sale to individuals age 65 or older in California shall
provide an examination period of 30 days after the receipt of the
policy or certificate for purposes of review of the contract. If the
policyholder or certificate holder chooses to cancel the policy or
certificate and returns the policy or certificate for cancellation, by
mail or other delivery method, within the 30-day examination
period, the return shall void the policy or certificate from the
beginning, and the parties shall be in the same position as if a
policy or certificate had not been issued. All premiums paid and
any policy or membership fee paid shall be fully refunded to the
policyholder or certificate holder by the insurer or entity in a timely
manner.

(a) For the purposes of this section, a timely manner is no later
than 30 days after the insurer or entity issuing the policy or
certificate receives the returned policy or certificate.

(b) If the insurer or entity issuing the policy or certificate fails
to refund all of the premiums and any policy or membership fee
paid, in a timely manner, the policyholder or certificate holder
shall receive interest on the paid premium and policy or
membership fee at the legal rate of interest on judgments as
provided in Section 685.010 of the Code of Civil Procedure. The
interest shall be paid from the date the insurer or entity received
the returned policy or certificate.

(c) Each policy or certificate shall have a notice prominently
printed in no less than 12-point bold print, on the begin insert front of the policy
jacket or on the end insert cover page of the policy or certificate and the
outline of coverage, stating that the policyholder or certificate
holder, as applicable, has the right to return the policy or certificate,
by mail or other delivery method, within 30 days after its receipt,
and to have the full premium and any policy or membership fee
paid refunded.

(d) If, at the time of application or at the time of delivery of a
group term life insurance policy or certificate, an insurer, its agent,
group master policyowner, or association collects more than one
month’s premium from an individual who is 60 years of age or
older on the date he or she purchased coverage, the insurer shall
provide the individual with a prorated refund of the premium if
the individual delivers a cancellation request to the insurer during
the first 30 days of the policy period.

SEC. 2.  

Section 10127.9 of the Insurance Code is amended to
read:

10127.9.  

(a) (1) Every individual life insurance policy and
every individual annuity contract begin delete which end delete begin insert that end insert is initially delivered
or issued for delivery in this state on and after January 1, 1990,
shall have printed on the begin insert front of the policy jacket or on the end insert cover
page a notice stating that, after receipt of the policy by the owner,
the policy may be returned by the owner for cancellation by
begin delete delivering it or mailing it end delete begin insert mail or other delivery method end insert to the
insurer or to the agent through whom it was purchased. The period
of time set forth by the insurer for return of the policy by the owner
shall be clearly stated and this period shall be not less than 10 days
nor more than 30 days.

(2) The owner may return the policy to the insurer by mail or
other delivery method at any time during the period specified in
the notice. In the case of individual nonvariable life insurance
policies and individual nonvariable annuity contracts, including
modified guaranteed contracts, by delivering or mailing the policy
pursuant to this section during the cancellation period, the owner
shall void the policy from the beginning, and the parties shall be
in the same position as if no policy had been issued. All premiums
paid and any policy fee paid for the policy shall be refunded by
the insurer to the owner within 30 days from the date that the
insurer is notified that the owner has canceled the policy. In the
case of individual variable annuity contracts and individual variable
life insurance policies, return of the policy during the cancellation
period shall entitle the owner to a refund of the account value and
any policy fee paid for the policy. The account value and policy
fee shall be refunded by the insurer to the owner within 30 days
from the date that the insurer is notified that the owner has canceled
the policy.

(b) This section applies to all individual policies issued or
delivered in this state on or after January 1, 1990, but does not
apply to any policy subject to Section 10127.7. All policies subject
to this section which are in effect on January 1, 1990, shall be
construed to be in compliance with this section, and any provision
in any policy which is in conflict with this section shall be of no
force or effect.

(c) This section does not apply to individual life insurance
policies issued in connection with a credit transaction or issued
under a contractual policy-change or conversion privilege provision
contained in a policy.

(d) General references to “policy” or “policies” in this section
refer to both life insurance policies and annuity contracts.

SEC. 3.  

Section 10127.10 of the Insurance Code is amended
to read:

10127.10.  

(a) Every policy of individual life insurance and
every individual annuity contract that is initially delivered or issued
for delivery to a senior citizen in this state on and after July 1,
2004, shall have printed on the begin insert front of the policy jacket or on the end insert
cover page a notice stating that, after receipt of the policy by the
owner, the policy may be returned by the owner for cancellation
by begin delete delivering it or mailing it end delete begin insert mail or other delivery method end insert to the
insurer or agent from whom it was purchased. The period of time
set forth by the insurer for return of the policy by the owner shall
be clearly stated in the notice and this period shall be not less than
30 days. The owner may return the policy to the insurer by mail
or begin delete otherwise end delete begin insert other delivery method end insert at any time during the period
specified in the notice. During the 30-day cancellation period, the
premium for an individual variable life insurance policy or an
individual variable annuity contract may be invested only in
fixed-income investments and money-market funds, unless the
owner specifically directs that the premium be invested in the
mutual funds underlying the variable life insurance policy or
variable annuity contract. Return of the policy within the 30-day
cancellation period shall have one of the following effects:

(1) In the case of individual variable life insurance policies and
individual variable annuity contracts for which the owner has not
directed that the premium be invested in the mutual funds
underlying the policy during the cancellation period, return of the
policy during the cancellation period shall have the effect of
voiding the policy from the beginning, and the parties shall be in
the same position as if no policy had been issued. All premiums
paid and any policy fee paid for the policy shall be refunded by
the insurer to the owner within 30 days from the date that the
insurer is notified that the owner has canceled the policy.

(2) In the case of individual variable life insurance policies and
individual variable annuity contracts for which the owner has
directed that the premium be invested in the mutual funds
underlying the policy during the 30-day cancellation period,
cancellation shall entitle the owner to a refund of the account value
and any policy fee paid for the policy. The account value shall be
refunded by the insurer to the owner within 30 days from the date
that the insurer is notified that the owner has canceled the policy.

(b) This section applies to all individual life insurance policies
and all individual annuity contracts issued or delivered to senior
citizens in this state on or after January 1, 2004. All policies subject
to this section which are in effect on January 1, 2003, shall be
construed to be in compliance with this section, and any provision
in any policy which is in conflict with this section shall be of no
force or effect.

(c) Every individual nonvariable life insurance policy and every
individual nonvariable annuity contract, including modified
guaranteed annuity contracts, subject to this section, that is
delivered or issued for delivery in this state shall have the following
notice printed on the begin insert front of the policy jacket or on the end insert cover page
in 12-point bold print with one inch of space on all sides, using
the exact language in quotation marks below, with whichever one
of the three bracketed product descriptions that applies to the
product on which the notice appears:

“IMPORTANT!

You have purchased a [life insurance policy or annuity contract
or modified guaranteed annuity contract]. Carefully review it for
limitations.

This policy may be returned within 30 days from the date you
received it for a full refund by returning it to the insurance company
or agent who sold you this policy. After 30 days, cancellation may
result in a substantial penalty, known as a surrender charge.”

The sentence “After 30 days, cancellation may result in a
substantial penalty, known as a surrender charge” may be deleted
if the policy does not contain a surrender charge. The phrase
“known as a surrender charge” may be deleted if the policy contains
a penalty but no surrender charge. begin insert If the policy contains both a
penalty, or penalties, and a surrender charge, the sentence shall
state that cancellation may result in a “[substantial penalty or
substantial penalties] and a surrender charge,” with either a
“substantial penalty” or “substantial penalties,” whichever applies
to the product upon which the notice appears. end insert Whether a charge
constitutes a surrender charge or a penalty shall be determined by
the nature of the charge and not the name given to the charge by
the insurer. begin insert If the surrender charge is called a “withdrawal
charge” in the policy, the insurer shall add the following sentence
at the end of the notice: end insert

begin insert end insert
begin insert

“In this policy the surrender charge is called a ‘withdrawal
charge.’”

end insert
begin insert end insert

(d) Every individual variable life insurance policy and every
individual variable annuity contract subject to this section, that is
delivered or issued for delivery in this state, shall have the
following notice printed on the begin insert front of the policy jacket or on the end insert
cover page in 12-point bold print with one inch of space on all
sides, using the exact language in quotation marks below, with
whichever one of the two bracketed product descriptions that
applies to the product on which the notice appears:

“IMPORTANT!

You have purchased a [variable life insurance policy or variable
annuity contract]. Carefully review it for limitations.

This policy may be returned within 30 days from the date you
received it. During that 30-day period, your money will be placed
in a fixed account or money-market fund, unless you direct that
the premium be invested in a stock or bond portfolio underlying
the policy during the 30-day period. If you do not direct that the
premium be invested in a stock or bond portfolio, and if you return
the policy within the 30-day period, you will be entitled to a refund
of the premium and any policy fee paid. If you direct that the
premium be invested in a stock or bond portfolio during the 30-day
period, and if you return the policy during that period, you will be
entitled to a refund of the policy’s account value on the day the
policy is received by the insurance company or agent who sold
you this policy, which could be less than the premium you paid
for the policy, plus any policy fee paid. A return of the policy after
30 days may result in a substantial penalty, known as a surrender
charge.”

The sentence “A return of the policy after 30 days may result in
a substantial penalty, known as a surrender charge” may be deleted
if the policy does not contain a surrender charge. begin insert end insert begin insert If the policy
contains both a penalty, or penalties, and a surrender charge, the
sentence shall state that cancellation may result in a “[substantial
penalty or substantial penalties] and a surrender charge,” with
either a “substantial penalty” or “substantial penalties,”
whichever applies to the product upon which the notice appears. end insert
The phrase “known as a surrender charge” may be deleted if the
policy contains a penalty but no surrender charge. Whether or not
a charge constitutes a surrender charge or a penalty will be
determined by the nature of the charge and not the name given to
the charge by the insurer. begin insert If the surrender charge is called a
“withdrawal charge” in the policy, the insurer shall add the
following sentence at the end of the notice: end insert

begin insert end insert
begin insert

“In this policy the surrender charge is called a ‘withdrawal
charge.’”

end insert
begin insert end insert

(e) If the individual annuity contract is an immediate annuity
contract, the following sentence, using the exact language in
quotation marks below, in 12-point bold print, shall be added at
the end of the right to examine language required by this section
and before the one inch of space:

“After the 30-day period has expired, you may not be able to
get your purchase payment money back in any manner, or in any
manner other than in annuity payments made according to the
terms of your contract. The insurance company or agent who sold
you this contract can explain if your contract has these restrictions.”

(f) This section does not apply to life insurance policies issued
in connection with a credit transaction or issued under a contractual
policy-change or conversion privilege provision contained in a
policy.

(g) For purposes of this chapter, a senior citizen means an
individual who is 60 years of age or older on the date of purchase
of the policy.

(h) General references to “policy” or “policies” in this section
refer to both life insurance policies and annuity contracts.

SEC. 4.  

Section 10127.13 of the Insurance Code is amended
to read:

10127.13.  

(a) All individual life insurance policies and
individual annuity contracts for senior citizens that contain a
surrender charge begin insert , including partial surrender, excess withdrawal
charges, or penalties upon surrender, end insert shall disclose the location
of the surrender charge, surrender charge period, and surrender
charge information, as well as any associated penalty information,
in bold 12-point print on the begin insert front of the policy jacket or on the end insert
cover page of the policy. begin delete The notice required by this section may
appear on a cover sheet that also contains the disclosure required
by subdivision (d) of Section 10127.10. end delete

begin delete

(b) The notice required by subdivision (a) shall be set forth on
the single cover page of the policy that also contains any statutorily
required notice regarding a right to examine.

end delete begin insert

(b) A policy shall have just one cover page, which shall be the
same page upon which any statutorily required notice of a right
to examine shall be set forth.

end insert

(c) General references to “policy” in this section refer to both
life insurance policies and annuity contracts.

SEC. 5.  

Section 10509.6 of the Insurance Code is amended to
read:

10509.6.  

Every life insurer that uses an agent in a life insurance
or annuity sale shall do the following:

(a) Require with or as part of each completed application for
life insurance or annuity, a statement signed by the agent as to
whether he or she knows begin insert a end insert replacement is or may be involved in
the transaction.

(b) Where a replacement is involved:

(1) Require from the agent with the application for life insurance
or annuity: (i) a list of all of the applicant’s existing life insurance
or annuity to be replaced, and (ii) a copy of the replacement notice
provided the applicant pursuant to Section 10509.4. The existing
life insurance or annuity shall be identified by name of insurer,
insured, and contract number. If a number has not been assigned
by the existing insurer, alternative identification, such as an
application or receipt number shall be listed.

(2) Send to each existing life insurer a written communication
advising of the replacement or proposed replacement and the
identification information obtained pursuant to this section and a
policy summary, contract summary, or ledger statement containing
policy data on the proposed life insurance or annuity. Cost indices
and equivalent level annual dividend figures need not be included
in the policy summary or ledger statement. This written
communication shall be made within three working days of the
date the application is received in the replacing insurer’s home or
regional office, or the date the proposed policy or contract is issued,
whichever is sooner.

(3) Every existing life insurer or the insurer’s agent that
undertakes a conservation shall, within 20 days from the date the
written communication plus the materials required in subdivisions
(1) and (2) are received by the existing insurer, furnish the
policyowner with a policy summary for the existing life insurance
or ledger statement containing policy data on the existing policy
or annuity. Information relating to premiums, cash values, death
benefits, and dividends, if any, shall be computed from the current
policy year of the existing life insurance. The policy summary or
ledger statement shall include the amount of any outstanding
indebtedness, the sum of any dividend accumulations or additions,
and may include any other information that is not in violation of
any regulation or statute. Cost indices and equivalent level annual
dividend figures need not be included. When annuities are
involved, the disclosure information shall be that in the contract
summary.

The replacing insurer may request the existing insurer to furnish
it with a copy of the summaries or ledger statement, which shall
be within five working days of the receipt of the request.

(c) The replacing insurer shall maintain evidence of the “notice
regarding replacement,” the policy summary, the contract summary,
and any ledger statements used, and a replacement register,
cross-indexed by replacing agent and existing insurer to be
replaced. The existing insurer shall maintain evidence of policy
summaries, contract summaries, or ledger statements used in any
conservation. Evidence that all requirements were met shall be
maintained for at least three years.

(d) The replacing insurer shall provide on the begin insert front of the policy
jacket or on the end insert cover page of its life insurance policy or annuity
contract or, alternatively, as a separate written document which is
delivered with the life insurance policy or annuity contract, a notice
stating that the owner has a right to an unconditional refund of all
premiums paid which right may be exercised within a period of
30 days commencing from the date of delivery of the contract. In
the case of variable annuities, and variable life insurance, return
of the contract during the cancellation period shall entitle the owner
to a refund of the account value and any policy fee paid. The
account value and policy fee shall be refunded by the insurer to
the owner within 30 days from the date that the insurer is notified
that the owner has canceled the contract.