BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2347| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2347 Author: Gonzalez (D) Amended: 6/19/14 in Senate Vote: 21 SENATE INSURANCE COMMITTEE : 10-0, 6/11/14 AYES: Monning, Gaines, Corbett, Correa, DeSaulnier, Mitchell, Nielsen, Roth, Torres, Vidak NO VOTE RECORDED: Lieu ASSEMBLY FLOOR : 78-0, 5/15/14 (Consent) - See last page for vote SUBJECT : Insurance policies SOURCE : Department of Insurance DIGEST : This bill, beginning July 1, 2015, adds 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; It also clarifies that the 30-day free look period applies to group life insurance policies; and requires 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. CONTINUED AB 2347 Page 2 ANALYSIS : 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 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. CONTINUED AB 2347 Page 3 This bill: 1.Specifies 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.Requires 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.Adds 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.Requires 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.Requires individual non-variable life insurance policies and non-variable annuity contracts, individual 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.Requires 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. 7.Specifies these provisions become effective July 1, 2015. 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 CONTINUED AB 2347 Page 4 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. Existing law also requires a notice with every life insurance and annuity product issued to seniors, explaining their rights. This bill requires mandated notices to be placed on the 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. Existing 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 adds 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 gives purchasers of individual annuity contracts the same right to return the policy, and require a notice on the cover page of the contract. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: CONTINUED AB 2347 Page 5 No SUPPORT : (Verified 6/19/14) Department of Insurance (source) California Advocates for Nursing Home Reform Congress of California Seniors Consumer Attorneys of California ARGUMENTS IN SUPPORT : The Consumer Attorneys state, "Annuities have become a significant part of the retirement and investment plans for many individuals. According to the Department of Insurance, most annuity consumers have limited insurance knowledge. "Under current law adults who are 65 or older are entitled to a 30-day 'free look' period when they purchase annuities. During the 'free look' period the purchaser can return the policy and receive a full refund of any premium paid without penalty. Unfortunately, consumers who purchase immediate annuities are often unaware of their right to revisit their decision to purchase an immediate annuity. These annuities are frequently marketed toward senior citizens. Disclosure cover sheets are currently required for fixed, indexed and variable annuity products, but they are not required for immediate annuities. AB 2347 will require that immediate annuity disclosure language be made available on the cover page of these policies in order to ensure that seniors who purchase these policies are made aware of their rights to revisit their annuity decision during the risk-free window." ASSEMBLY FLOOR : 78-0, 5/15/14 AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom, Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley, Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea, John A. Pérez, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner, Waldron, CONTINUED AB 2347 Page 6 Weber, Wieckowski, Wilk, Williams, Yamada, Atkins NO VOTE RECORDED: Mansoor, Vacancy AL/JA:e 6/19/14 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED