BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 924|
|Office of Senate Floor Analyses | |
|(916) 651-1520 Fax: (916) | |
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CONSENT
Bill No: SB 924
Author: Roth (D)
Amended: 3/28/16
Vote: 21
SENATE INSURANCE COMMITTEE: 8-0, 4/13/16
AYES: Roth, Gaines, Berryhill, Glazer, Hall, Liu, Mitchell,
Wieckowski
NO VOTE RECORDED: Hernandez
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Insurance: annuity transactions
SOURCE: California Advocates for Nursing Home Reform
DIGEST: This bill adds to the definition of suitability
information" when purchasing an annuity whether or not the
consumer intends to apply for means-tested government benefits,
including but not limited to, Medi-Cal or the veterans' aid and
attendance benefit.
ANALYSIS:
Existing law:
1)Provides that all insurers, brokers, agents and others engaged
in the transaction of insurance owe a prospective insured who
is 65 or older a duty of honesty, good faith and fair dealing,
in addition to any other duty, whether express or implied; (IC
§785.5)
2)Requires insurers and insurance agents and brokers, in
recommending the purchase or exchange of an annuity, to have
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reasonable grounds for believing that the recommendation is
suitable for the consumer based on facts disclosed by the
consumer, as specified; (IC §10509.910)
3)Defines "suitability information" to be provided by the
consumer to include:
a) Age;
b) Annual income;
c) Financial situation and needs, including the financial
resources that will be used to fund the annuity;
d) Financial experience;
e) Financial objectives;
f) Intended use of the annuity;
g) Financial time horizon;
h) Existing assets, including investment and life insurance
holdings;
i) Liquidity needs;
j) Liquid net worth;
aa) Risk tolerance;
bb) Tax status;
cc) Whether or not the consumer has a reverse mortgage; (IC
§10509.913)
4)Prohibits the sale of an individual annuity to a senior if the
purpose of the sale is affect eligibility for Medi-Cal, under
specified conditions (Insurance Code §789.9);
5)Prohibits an insurance agent or broker from participating in
efforts to obtain veterans benefits or services for a senior
unless the agent or broker has no direct financial incentive
to refer the policyholder or prospective policyholder to any
veterans benefits program offered through the government. (IC
§785.5)
This bill adds to the definition of "suitability information"
when purchasing an annuity whether or not the consumer intends
to apply for means-tested government benefits, including but not
limited to, Medi-Cal or the veterans' aid and attendance
benefit.
Comments
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It is illegal for an insurance agent or broker to sell an
annuity to a senior if the purpose of the sale is for the senior
to qualify for government benefits, including Medi-Cal and the
Veteran's Aid and Attendance Benefit. They also have a
statutory duty of honesty, good faith and fair dealing to all
seniors. Despite this, some unscrupulous brokers have targeted
wealthy elderly residents of nursing homes to reposition their
assets in order to apply for certain means-tested benefits from
the U.S. Department of Veterans Affairs (VA). An integral part
of the scheme is selling unwitting retirees unsuitable annuities
that earn the brokers large commissions and profits. Part of the
scam is convincing the senior that these benefits are actually
entitlements. These annuities can tie up assets for years and
carry hefty surrender penalties if the senior is denied the
government benefits they have been promised or find they need
access to their assets to pay unexpected medical or other
expenses. Some agents have also been accused of selling
unsuitable annuities to seniors for the sole purpose of
qualifying for Medi-Cal and shielding assets from Medi-Cal
recovery.
Legislation was enacted in 2011 (AB 689 Blumenthal, Chapter 295,
Statutes of 2011) that required insurers to establish a system
to supervise the suitability of annuity sale recommendations so
that the insurance needs and financial objectives of consumers
at the time of the transaction are appropriately addressed. That
bill established a list of specified information the consumer
must provide to determine suitability, including age, annual
income, financial situation and needs, intended use of the
annuity, risk tolerance, net worth and tax status. This bill
adds whether the consumer intends to apply for means-tested
government benefits to the above list.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
SUPPORT: (Verified5/3/16)
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California Advocates for Nursing Home Reform (source)
California Commission on Aging
California Department of Insurance
California Long-Term Care Ombudsman Association
Consumer Attorneys of California
Contra Costa Advisory Council on Aging
Retired Public Employees Association
San Diego District Attorney
OPPOSITION: (Verified5/3/16)
None received
ARGUMENTS IN SUPPORT: California Advocates for Nursing Home
Reform have sponsored SB 924 because on occasion unscrupulous
agents will attempt to mislead seniors into believing that
government benefits intended for low-wealth or impoverished
seniors such as the Veterans Aid and Attendance Benefit are
actually entitlements, and in order to qualify it is necessary
liquidate assets and convert them into annuities they claim are
"government friendly". These annuities can tie up the senior's
assets for years and can create hefty surrender penalties if the
senior needs to access their assets prematurely. The California
Department of Insurance states that since these actions by
agents are illegal, whether or not a consumer intends to apply
for means tested government benefits should be added to the list
of suitability criteria for the purchase of annuities.
Prepared by: Erin Ryan / INS. / (916) 651-4110
5/4/16 14:58:08
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