BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
AB 2347 (Gonzalez) Hearing Date: June 11, 2014
As Amended: June 3, 2014
Fiscal: No
Urgency: No
VOTES: Asm. Floor (05/15/14)78-00/Pass
Asm. Ins. (05/07/14) 12-00/Pass
SUMMARY Would add immediate annuities to the requirement that
life insurance policies and annuity contracts delivered or
issued to a senior citizen include a notice of the right to
return or cancel the policy or contract within 30 days for a
full refund; would clarify that the 30 day free look period
applies to group life insurance policies; would require the
notice of the 30 day right to return, and any surrender charges
or penalties, be in 12 point bold print on the policy jacket or
cover page; and makes other technical and clarifying changes to
life insurance policies and annuity contracts.
DIGEST
Existing law
1. Requires all disability and life insurance policies or
certificates offered for sale to individuals 65 and older to
include a 30 day "free look" period starting on receipt of the
policy or certificate;
2. Allows the senior to return the policy within that 30 day
period, including a full refund of any premiums paid and any
policy or membership fees in a timely manner; and specifies that
return of the policy voids the policy or certificate;
3. Requires each policy or certificate in #1 to have a notice in
no less than 10 point uppercase font prominently printed on the
cover page of the policy or certificate describing the 30-day
right to return the policy;
4. Requires all individual life insurance policies to include a
AB 2347 (Gonzalez), Page 2
right to return of not less than 10 days nor more than 30 days,
specifies that return of the policy within the "free look"
period voids the policy and requires all premiums and fees paid
to be refunded; and requires a notice of that right be printed
on the policy or attached to it;
5. Requires every individual life insurance or individual annuity
contract issued to a "senior citizen" to include a right of
return of no less than 30 days; defines a "senior citizen" as a
person who is 60 years of age or older when the policy is
purchased; and requires a notice explaining the right of return
to be printed on the policy, or attached to it;
6. Requires individual life insurance policies and individual
annuity contracts issued or delivered to a senior citizen to
have a notice printed on the cover page or policy jacket
explaining the right to return, and any penalties or surrender
charges that may apply after the 30 day period, as specified;
provides for a modified notice for purposes of variable annuity
or modified guaranteed contracts.
This bill
1. Would specify that existing requirements for a 30 day "free
look" period for disability insurance and life insurance
policies offered for sale to Californians age 65 and older
apply to individual and group life insurance products;
2. Would require the mandated notice explaining the 30 day
"free look" period be in 12 point bold print on the front of
the policy jacket or on the cover page of the policy, as
specified;
3. Would add individual annuity contracts to the requirement
that all individual life insurance policies include a right
to return of not less than 10 days nor more than 30 days, as
provided in #4 above;
4. Would require the mandatory notice to a senior citizen
describing the 30 day "free look" required in #5 above to be
on the front of the policy jacket or the cover page;
5. Would require individual non-variable life insurance
policies and non-variable annuity contracts, individual
AB 2347 (Gonzalez), Page 3
variable life insurance policies and annuity contracts, and
immediate annuity contracts sold to senior citizens to
include a notice on the front of the policy jacket or cover
page in 12 point bold print that describes the 30 day right
to return and any surrender charges or penalties, as
specified;
6. Would require all individual life insurance policies and
individual annuity contracts sold to senior citizens that
include any surrender charges or withdrawal penalties to
include a description of those charges or penalties in 12
point bold print on the policy jacket or cover page, and
their location in the policy or contract.
COMMENTS
1. Purpose of the bill To require disclosure language on the
front of the policy jacket or on the cover sheet of
immediate annuity products to align with the disclosure
language that is found on deferred annuity products, and
clarify the existing senior disclosure language for life
insurance policies and annuity contracts.
2. Background Even when they are not in the highest tax
brackets, seniors are very tax sensitive and therefore
interested in products that are touted as being estate and
tax-planning tools. Seniors want to be self-sufficient, so
may not always consult with friends or reputable investment
professionals who could offer reliable advice on these often
complex products. They also may not have the technological
resources to research companies (i.e. on the internet).
Many also have time to attend seminars and presentations,
which are often used to gather financial and personal
information for later sales pitches. Not surprisingly,
seniors have been prime targets for scams and financial and
insurance products that are inappropriate for their needs.
As a result, seniors have been given special protections in
the Insurance Code, including the right to return life
insurance and annuity products for a full refund, no
questions asked, within a 30 day time period. Current law
also requires a notice with every life insurance and annuity
product issued to seniors, explaining their rights. This
bill would require mandated notices to be placed on the
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front or cover page of all life insurance policies and
annuity contracts clearly explaining the right to return the
policy for a full refund, and any penalties or surrender
charges that apply after that period.
Current law also does not include immediate annuities in
those right of return and disclosure requirements. An
immediate annuity, also known as an immediate payment or
fixed payment annuity is an annuity contract that is
purchased with a single lump-sum payment and in exchange,
pays a guaranteed income that starts almost immediately. An
immediate payment annuity is suitable for retirees who are
concerned about outliving their savings. However, one
disadvantage is that an immediate payment annuity has zero
liquidity and is irreversible once it has been purchased.
This may pose a problem should the annuitant need a large
sum to deal with an emergency. This bill would add immediate
annuities to the products requiring a mandated notice for
seniors explaining their right to return or cancel the
contract within 30 days, and explaining that after the 30
day period they may not be able to get their money back.
Currently, individual life insurance policies, but not
individual annuity contracts issued or delivered to
individuals who are not 60 years of age or older are
required to include a right to return of no less than 10 or
more than 30 days. This bill would give purchasers of
individual annuity contracts the same right to return the
policy, and require a notice on the cover page of the
contract.
3. Support . The Department of Insurance has sponsored AB 2347
because a "free look" period and disclosure language is
needed for immediate annuities to ensure that a senior
citizen can determine whether this type of annuity is well
suited for them. Although an immediate annuity provides a
steady income, it ties up the consumer's principal and funds
are no longer liquid. The bill also makes the current life
insurance and annuity disclosure language clearer for
seniors.
The Congress of California Seniors supports AB 2347 because
it would simplify currently required disclosure language so
that seniors will be more easily able to understand what
they are purchasing.
AB 2347 (Gonzalez), Page 5
According to the California Advocates for Nursing Home
Reform, the insurance industry spends millions of dollars on
advertising and research on how to position and convince
seniors to purchase their products. While it is not possible
to even the playing field, consumers deserve, at a minimum,
a right to receive honest and intelligible disclosures about
products that may end up having a dilatory effect on their
financial well-being. It is essential to do everything that
is reasonable in order to prevent seniors from inadvertently
purchasing an unsuitable insurance product.
4. Opposition None received.
5. Suggested Amendments . Technical and clarifying amendments,
and change of the effective date to July 1, 2015 to allow
insurers sufficient time to change their forms and
processes.
a. On page 6, lines 35-36, DELETE "[life
insurance policy or annuity contract or modified
guaranteed annuity contract]" and ADD [life insurance
policy], [annuity contract], [modified guaranteed
annuity contract], referred to below as a "policy'.
b. On page 7, lines 32-33, repeat the changes in
(a);
c. Change the effective date to July, 1, 2015
POSITIONS
Support
Department of Insurance (sponsor)
Congress of California Seniors
California Advocates for Nursing Home Reform
Oppose
None received
Consultant: Erin Ryan (916) 651-4110