BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    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.


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           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.


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          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  

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          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:  

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           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,  

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                                                                    AB 2347
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            Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
          NO VOTE RECORDED:  Mansoor, Vacancy


          AL/JA:e  6/19/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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