BILL ANALYSIS Ó
SB 924
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Date of Hearing: June 22, 2016
ASSEMBLY COMMITTEE ON INSURANCE
Tom Daly, Chair
SB
924 (Roth) - As Amended March 28, 2016
SENATE VOTE: 36-0
SUBJECT: Insurance: annuity transactions
SUMMARY: Expands the definition of "suitability information" to
include the applicant's intention to apply for means tested
government benefits.
EXISTING LAW:
1)Requires the seller of an annuity to recommend an annuity to
the purchaser only if the seller has a reasonable basis to
believe that the annuity is "suitable" for the purchaser based
the purchaser's financial situation.
2)Requires the seller of an annuity to obtain specified
"suitability information" from a prospective purchaser,
including:
a. Age
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b. Income
c. Financial Objectives
d. Risk Tolerance
e. Tax Status
f. Other Assets
g. Investment Horizon
h. Intended Use of the Annuity
FISCAL EFFECT: The bill was reported out of the Senate
Appropriations Committee pursuant to Senate Rule 28.8.
COMMENTS:
1)Purpose. According to the author:
"It is illegal for an insurance agent or broker to sell an
annuity if the purpose of the sale is for the consumer to
qualify for government benefits, including Medi-Cal and the
Veteran's Aid and Attendance Benefit. They also have a
statutory duty of good faith and fair dealing. Despite this,
some unscrupulous brokers have targeted wealthy elderly
residents of nursing homes to reposition their assets in order
to apply for certain benefits from the U.S. Department of
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Veterans Affairs. An integral part of the scheme is selling
unwitting retirees unsuitable annuities that earn the brokers
large commissions and profits. They can also convince 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.
Legislation was enacted in 2011 (AB 689 Blumenfield, Chap. 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 would add whether the consumer
intends to apply for government benefits to the above list."
2)Annuities. Annuities are financial products designed to
convert premium paid by the purchaser (in either a lump sum or
periodic payments) into a stream of payments to the purchaser.
They are designed to provide a stable cash flow for the
purchaser (most commonly for retirees) and alleviate the risk
of outliving one's assets. Annuities can be structured so that
payments will continue so long as either the purchaser or
their spouse (if survivorship benefit is elected) is alive or
to pay out funds for a fixed period of time. Annuities can be
structured to provide immediate payments or to defer payments
to a later date.
REGISTERED SUPPORT / OPPOSITION:
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Support
California Advocates for Nursing Home Reform (sponsor)
California Commission on Aging
Consumer Attorneys of California
Department of Insurance
San Diego County District Attorney
Opposition
None received
Analysis Prepared by:Paul Riches / INS. / (916)
319-2086
SB 924
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