BILL NUMBER: AB 2066 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Jones
FEBRUARY 18, 2010
An act to amend and renumber Section 789.9 of, and to add Article
6.4 (commencing with Section 789.11) to Chapter 1 of Part 2 of
Division 1 of, the Insurance Code, relating to annuity transactions.
LEGISLATIVE COUNSEL'S DIGEST
AB 2066, as introduced, Jones. Annuity sales: seniors.
Existing law generally regulates insurance, including annuity
products. Existing law requires a life insurance agent to provide
specified disclosures to seniors 65 years of age or older in certain
circumstances. Existing law also prohibits the sale of an annuity to
a senior in specified circumstances.
This bill would require all insurers, brokers, agents, and others
engaged in the transaction of insurance who offer to sell an annuity
to a senior to disclose to the senior, as defined, all material facts
and features of the annuity that he or she knows or reasonably
should know are likely to affect the decision of the senior to
purchase the annuity.
The bill would also require all insurers, brokers, agents, and
others engaged in the transaction of insurance who offer to sell an
annuity to a senior to provide the senior with the required written
notice with all blanks filled in and initialed by the senior, and
signed by the senior and the licensed producer or insurer in the
transaction.
The bill would delineate conditions under which it would be
presumptively improper to sell an annuity to a senior.
The bill would make the sale of an annuity to a senior without
fulfilling the written notice requirement or the under circumstances
described as presumptively improper a violation of the duty owed to a
prospective insured who is 65 years of age or older of honesty, good
faith, and fair dealing. The bill would also make the sale of an
annuity to a senior without fulfilling the written notice
requirement, or under the circumstances described as presumptively
improper, financial abuse of a senior, as defined, and thereby make
that sale subject to reporting requirements and civil penalties
pursuant to other provisions of law.
The bill would require compensation to brokers, agents, and others
who act as the producer in a transaction involving the sale of an
annuity to a senior, be paid on an annual basis spread or trailed
evenly over the life of the annuity, or spread or trailed evenly over
the surrender period of the annuity. The bill would prohibit the
surrender penalty charged an annuitant, or his or her heirs or
assigns, from exceeding either the compensation already paid to the
producer at the time of surrender or the total compensation to be
paid to the producer less any amount already paid to the producer, as
prescribed.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 789.9 of the Insurance Code is amended and
renumbered to read:
789.9. 789.17. (a) In addition to
any other reasons that a sale of an individual annuity to a senior
may violate any provision of law, an annuity shall not be sold to a
senior in any of the following circumstances:
(1) The senior's purpose in purchasing the annuity is to affect
Medi-Cal eligibility and either of the following is true:
(A) The purchaser's assets are equal to or less than the community
spouse resource allowance established annually by the State
Department of Health Care Services pursuant to the
Medi-Cal Act (Chapter 7 (commencing with Section 14000) of Part 3 of
Division 9 of the Welfare and Institutions Code).
(B) The senior would otherwise qualify for Medi-Cal.
(2) The senior's purpose in purchasing the annuity is to affect
Medi-Cal eligibility and, after the purchase of the annuity, the
senior or the senior's spouse would not qualify for Medi-Cal.
(b) In the event that a fixed annuity specified in subdivision (a)
is issued to a senior, the issuer shall rescind the contract and
refund to the purchaser all premiums, fees, any interest earned under
the terms of the contract, and costs paid for the annuity. This
remedy shall be in addition to any other remedy that may be
available.
SEC. 2. Article 6.4 (commencing with Section 789.11) is added to
Chapter 1 of Part 2 of Division 1 of the Insurance Code, to read:
Article 6.4. Annuity Sales to Seniors
789.11. The Legislature finds and declares all of the following:
(a) The Legislature recognizes that seniors often live on fixed
incomes, own limited assets, and have a limited ability to recover
from economic loss.
(b) The Legislature further recognizes that seniors often
experience unanticipated health problems that may cause them to incur
substantial expenses, that seniors are often required to invade
savings and liquidate assets in order to meet those expenses, and
that the unplanned sale of assets often results in significant loss
and economic hardship.
(c) The Legislature further recognizes that annuities are complex
long-term investments in which the invested dollars are unavailable
for many years and that the withdrawal of funds from annuities often
involves the payment of large surrender penalties and the forfeiture
of income and other benefits of the investment.
(d) The Legislature further recognizes that seniors are often
targeted for the sale of annuities and may purchase them without
understanding the complex provisions that may make invested funds
unavailable or expensive to recover should an unexpected event
require a senior to withdraw his or her funds from the annuity.
(e) The Legislature further recognizes that seniors constitute a
significant and identifiable segment of the population, that seniors
are more subject to risks of abuse and exploitation than the general
population, and that this state has a responsibility to protect
seniors from exploitation during financial transactions.
(f) The Legislature declares that this state shall protect the
economic well-being of its seniors by requiring reasonable disclosure
of annuity features and prohibiting or limiting the sale of
annuities in certain circumstances.
789.12. For purposes of this article, the terms "elder" and
"senior" both mean any person 65 years of age or older residing in
this state.
789.13. In addition to all other disclosures required by law, all
insurers, brokers, agents, and others engaged in the transaction of
insurance who offer to sell an annuity to a senior shall disclose to
the senior all material facts and features of the annuity that he or
she knows or reasonably should know are likely to affect the decision
of the senior to purchase the annuity.
789.14. In addition to all other disclosures required by law, all
insurers, brokers, agents, and others engaged in the transaction of
insurance who offer to sell an annuity to a senior shall provide the
senior with the following notice in no less than 12-point type, with
all blanks filled in and initialed by the senior, and signed by the
senior and the licensed producer or insurer in the transaction:
IMPORTANT NOTICE TO THE PURCHASER OF AN ANNUITY:
AN ANNUITY IS A COMPLEX INVESTMENT IN WHICH YOU
GIVE UP ACCESS TO YOUR MONEY FOR MANY YEARS AND
SUBSTANTIAL PENALTIES MAY BE IMPOSED FOR EARLY
WITHDRAWAL.
IF YOU DECIDE TO BUY AN ANNUITY, YOU WILL SIGN
BINDING LEGAL DOCUMENTS THAT WILL HAVE IMPORTANT
LEGAL, FINANCIAL, AND TAX IMPLICATIONS FOR YOU
AND YOUR ESTATE.
IT IS IMPORTANT THAT YOU UNDERSTAND THE TERMS OF
THE ANNUITY AND THEIR EFFECT. PRIOR TO
PURCHASING THE ANNUITY, YOU MUST CAREFULLY READ,
COMPLETE, AND INITIAL EACH ITEM, AND SIGN THE
FOLLOWING CHECKLIST.
_ Are you married or do you have a domestic
partner? (Yes or No).
What is the approximate amount of your assets
that are countable for Medi-Cal purposes (if
_ you are married or have a domestic partner,
insert the combined Medi-Cal countable
assets of both)? ____________________________.
_ Do you already own any annuities? (Yes or No).
_ If yes, what is the total amount of those
annuities? __________________________________.
_ What is the amount of the annuity you are
considering buying? _________________________.
What is the total amount you will have
_ invested in all annuities if you buy this
annuity? ____________________________________.
What is the percentage of your assets that
are countable for Medi-Cal purposes (either
_ individually or the combined amount if you
are married or have a domestic partner) that
will be invested in annuities if you purchase
this annuity? _______________________________.
Do you have a reverse mortgage or intend to
_ combine the purchase of an annuity with a
reverse mortgage? (Yes or No).
_ What is your age? ___________________________.
What is your life expectancy as established
_ by the Office of Actuary of the United States
Social Security Administration? _____________.
What are the number of years until the end of
_ the surrender-penalty period of the annuity?
_____________________________________________.
_ What will be your age at the end of the
surrender-penalty period of the annuity? ____.
_ What is the amount of the surrender
penalty at its highest level? _______________.
_ What is the amount of the compensation to be
paid as a result of the sale? _______________.
_ What is the maximum amount you can withdraw
each year without penalty? __________________.
What is the reasonably expected annual rate
_ of return on the annuity if it is held to
maturity? ___________________________________.
What is the current annual rate of return on
_ investments of a similar term offered by the
United States Treasury? _____________________.
I have read the above notice, completed it to
the best of my knowledge, and have received a
copy.
Dated: ____________ Signature: __________________
Senior
Dated: ____________ Signature: __________________
By: ______________________
Its: _____________________
789.15. It shall be presumptively improper to sell an annuity to
a senior under any of the following conditions:
(a) The senior has a reverse mortgage or combines the purchase of
a reverse mortgage with the purchase of an annuity.
(b) The senior has countable assets in an amount equal to or less
than the community spouse resource allowance as established annually
by the State Department of Health Care Services pursuant to the
Medi-Cal Act (Chapter 7 (commencing with Section 14000) of Part 3 of
Division 9 of the Welfare and Institutions Code), and if the senior
has a spouse or registered domestic partner, it shall be
presumptively wrongful to sell an annuity to a senior where the total
of both partners' countable assets is equal to or less than twice
the community spouse resource allowance.
(c) The sale of the annuity would result in the senior holding 50
percent or more of his or her countable assets as annuities, and if
the senior has a spouse or registered domestic partner, the sale of
the annuity would result in the senior and the senior's partner
holding 50 percent or more of the total of both partners' countable
assets as annuities.
(d) The surrender penalty period of the annuity exceeds the life
expectancy of the senior as established by the Office of Actuary of
the United States Social Security Administration.
789.16. (a) The sale of an annuity to a senior without fulfilling
the disclosure requirements of Section 789.14 or under the
circumstances listed in Section 789.15, in addition to any other
remedy available by law, shall constitute a violation of Section 785.
(b) The sale of an annuity to a senior without fulfilling the
disclosure requirements of Section 789.14 or under the circumstances
listed in Section 789.15, in addition to any other remedy available
by law, shall constitute financial abuse of a senior as defined in
Section 15610.30 of the Welfare and Institutions Code.
789.18. Compensation paid to brokers, agents, and others who act
as the producer in a transaction involving the sale of an annuity to
a senior, shall be paid on an annual basis spread or trailed evenly
over the life of the annuity, or spread or trailed evenly over the
surrender period of the annuity.
789.19. Under no circumstances shall any surrender penalty
charged to an annuitant, or the heir or assign of an annuitant,
exceed either of the following:
(a) The compensation already paid to the producer pursuant to
Section 789.18 at the time of surrender.
(b) The total compensation to be paid to the producer less any
amount already paid to the producer, as prescribed in Section 789.18.