California Legislature—2013–14 Regular Session

Assembly Bill No. 2347

Introduced by Assembly Member Gonzalez

February 21, 2014

An act to amend Sections 786, 10127.9, 10127.10, 10127.13, and 10509.6 of the Insurance Code, relating to insurance.

LEGISLATIVE COUNSEL’S DIGEST

AB 2347, as introduced, Gonzalez. Insurance policies.

(1) Existing law requires that a disability insurance policy or life insurance policy and certificate offered for sale to individuals 65 years of age or older in California provide a 30-day examination period during which the applicant may return the contract and receive a refund of all premiums and any membership fee paid. This information is required to be disclosed on the cover sheet of the policy or certificate, in no less than 10-point uppercase type. Existing law allows the applicant to return the policy or certificate by regular mail.

This bill would specify that those requirements apply to individual and group disability and group life insurance policies and certificates. The bill would require that the notice be in 12-point bold type. The bill would allow the policyholder or certificate holder to return the policy or certificate by mail or other delivery method. The bill would also require an insurer, its agent, group master policyowner, or association that collects more than one month’s premium from an individual who is 60 years of age or older on the date he or she purchased the coverage to provide that person a prorated refund of the premium if the person delivers a cancellation request during the first 30 days of the policy period.

(2) Existing law requires a policy of individual life insurance that is initially delivered or issued for delivery in the state on and after January 1, 1990, to have printed thereon or attached thereto a specified notice of cancellation rights.

This bill would require that disclosure to be printed on the cover page of every individual life insurance policy and individual annuity contract.

(3) Existing law requires specified disclosures, in all capital letters, pertaining to cancellation and refunds, to the consumers of variable individual life insurance policies and variable annuity contracts, and of consumers of individual life insurance policies other than variable contracts and modified guaranteed contracts. Existing law requires an insurer to include in those disclosures that the applicant may be charged a surrender charge or penalty if he or she cancels the policy after the 30-day period, unless the policy does not contain surrender charges or penalties.

This bill would additionally require that those disclosures be included with a modified guaranteed annuity contract, and would instead require that the disclosure be made in lowercase type. The bill would instead require the disclosure pertaining to a surrender charge or penalty to be included only if the policy contains a penalty.

(4) Existing law requires all individual life insurance policies and individual annuity contracts for senior citizens that contain a surrender charge period to either disclose the surrender period and all associated penalties in 12-point bold print on the cover sheet of the policy or disclose the location of the surrender information in bold 12-point print on the cover page of the policy or printed on a sticker that is affixed to the cover page or to the policy jacket.

This bill would instead require those policies and contracts to disclose the location of the surrender charge, surrender charge period, and surrender charge information and associated penalty information in bold 12-point print on the single cover page of the policy that also contains any statutorily required notice regarding a right to examine.

The bill would also make conforming changes.

Vote: majority. Appropriation: no. Fiscal committee: no. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 786 of the Insurance Code is amended
to read:

786.  

All begin insert individual and group end insert disability insurance begin insert policies and
certificates, end insert and begin insert all group end insert life insurance policies and certificates
offered for sale to individuals age 65 or older in California shall
provide an examination period of 30 days after the receipt of the
policy or certificate for purposes of review of the begin delete contract, at which
time the applicant may return the contract. The end delete begin insert contract. If the
policyholder or certificate holder chooses to cancel the policy or
certificate and returns the policy or certificate for cancellation,
by mail or other delivery method, within the 30-day examination
period, the end insert return shall void the policy or certificate from the
beginning, and the parties shall be in the same position as if begin delete no
contract end delete begin insert a policy or certificate end insert had begin insert not end insert been issued. All premiums
paid and any policy or membership fee begin insert paid end insert shall be fully refunded
to the begin delete applicant end delete begin insert policyholder or certificate holder end insert by the insurer
or entity in a timely manner.

(a) For the purposes of this section begin insert , end insert a timely manner begin delete shall be end delete begin insert is end insert
no later than 30 days after the insurer or entity issuing the policy
or certificate receives the returned policy or certificate.

(b) If the insurer or entity issuing the policy or certificate fails
to refund all of the premiums begin insert and any policy or membership fee end insert
paid, in a timely manner, begin delete then end delete the begin delete applicant end delete begin insert policyholder or
certificate holder end insert shall receive interest on the paid premium begin insert and
policy or membership fee end insert at the legal rate of interest on judgments
as provided in Section 685.010 of the Code of Civil Procedure.
The interest shall be paid from the date the insurer or entity
received the returned policy or certificate.

(c) Each policy or certificate shall have a notice prominently
printed in no less than begin delete 10-point uppercase type, end delete begin insert 12-point bold print, end insert
on the cover page of the policy or certificate and the outline of
coverage, stating that the begin delete applicant end delete begin insert policyholder or certificate
holder, as applicable, end insert has the right to return the policy or begin delete certificate end delete
begin insert certificate, by mail or other delivery method, end insert within 30 days after
its begin delete receipt via regular mail, end delete begin insert end insert begin insert receipt, end insert and to have the full premium
begin insert and any policy or membership fee paid end insert refunded.

begin delete

(d) In the event of any conflict between this section and Section
10127.10 with respect to life insurance, the provisions of Section
10127.10 shall prevail.

end delete begin insert

(d) If, at the time of application or at the time of delivery of a
group term life insurance policy or certificate, an insurer, its agent,
group master policyowner, or association collects more than one
month’s premium from an individual who is 60 years of age or
older on the date he or she purchased coverage, the insurer shall
provide the individual with a prorated refund of the premium if
the individual delivers a cancellation request to the insurer during
the first 30 days of the policy period.

end insert

SEC. 2.  

Section 10127.9 of the Insurance Code is amended to
read:

10127.9.  

(a)  begin insert (1) end insert begin insert   end insert Every begin delete policy of end delete individual life insurance begin insert end insert
begin insert policy and every individual annuity contract end insert which is initially
delivered or issued for delivery in this state on and after January
1, 1990, shall have printed begin delete thereon or attached thereto end delete begin insert on the cover
page end insert a notice stating that, after receipt of the policy by the owner,
the policy may be returned by the owner for cancellation by
delivering it or mailing it to the insurer or to the agent through
whom it was purchased. The period of time set forth by the insurer
for return of the policy by the begin delete insured end delete begin insert end insert begin insert owner end insert shall be clearly stated
begin delete on the notice end delete and this period shall be not less than 10 days nor
more than 30 days. begin delete The insured end delete

begin insert (2) end insert begin insert   end insert begin insert The owner end insert may return the policy to the insurer by mail or
begin delete otherwise end delete begin insert other delivery method end insert at any time during the period
specified in the notice. In the case of individual begin insert nonvariable end insert life
insurance policies begin delete (other than variable contracts and modified
guaranteed contracts), end delete begin insert end insert begin insert and individual non end insert begin insert variable annuity
contracts, including modified guaranteed contracts, end insert by delivering
or mailing the policy pursuant to this section during the cancellation
period, the owner shall void the policy from the beginning, and
the parties shall be in the same position as if no policy had been
issued. All premiums paid and any policy fee paid for the policy
shall be refunded by the insurer to the owner within 30 days from
the date that the insurer is notified that the begin delete insured end delete begin insert owner end insert has
canceled the policy. In the case of begin insert individual end insert variable annuity
begin delete contracts, end delete begin insert contracts and individual end insert variable life insurance begin delete contracts,
and modified guaranteed contracts, end delete begin insert end insert begin insert policies, end insert return of the begin delete contract end delete
begin insert policy end insert during the cancellation period shall entitle the owner to a
refund of begin insert the end insert account value and any policy fee paid for the policy.
The account value and policy fee shall be refunded by the insurer
to the owner within 30 days from the date that the insurer is notified
that the owner has canceled the policy.

(b) This section applies to all begin insert individual end insert policies issued or
delivered in this state on or after January 1, 1990, but does not
apply to any policy subject to Section 10127.7. All policies subject
to this section which are in effect on January 1, 1990, shall be
construed to be in compliance with this section, and any provision
in any policy which is in conflict with this section shall be of no
force or effect.

(c) This section does not apply to individual life insurance
policies issued in connection with a credit transaction or issued
under a contractual policy-change or conversion privilege provision
contained in a policy.

begin insert

(d) General references to “policy” or “policies” in this section
refer to both life insurance policies and annuity contracts.

end insert

SEC. 3.  

Section 10127.10 of the Insurance Code is amended
to read:

10127.10.  

(a) Every policy of individual life insurance and
every individual annuity contract that is initially delivered or issued
for delivery to a senior citizen in this state on and after July 1,
2004, shall have printed begin delete thereon or attached thereto end delete begin insert end insert begin insert on the cover
page end insert a notice stating that, after receipt of the policy by the owner,
the policy may be returned by the owner for cancellation by
delivering it or mailing it to the insurer or agent from whom it was
purchased. The period of time set forth by the insurer for return
of the policy by the owner shall be clearly stated begin delete on end delete begin insert in end insert the notice
and this period shall be not less than 30 days. The owner may
return the policy to the insurer by mail or otherwise at any time
during the period specified in the notice. During the 30-day
cancellation period, the premium for begin delete a variable annuity end delete begin insert end insert begin insert an
individual variable life insurance policy or an individual variable
annuity contract end insert may be invested only in fixed-income investments
and money-market funds, unless the begin delete investor end delete begin insert owner end insert specifically
directs that the premium be invested in the mutual funds underlying
the begin insert variable life insurance policy or end insert variable annuity contract.
Return of the policy within the 30-day cancellation period shall
have one of the following effects:

(1) In the case of individual begin insert end insert begin insert variable end insert life insurance policies and
begin insert individual end insert variable annuity contracts for which the owner has not
directed that the premium be invested in the mutual funds
underlying the begin delete contract end delete begin insert policy end insert during the cancellation period, return
of the policy during the cancellation period shall have the effect
of voiding the policy from the beginning, and the parties shall be
in the same position as if no policy had been issued. All premiums
paid and any policy fee paid for the policy shall be refunded by
the insurer to the owner within 30 days from the date that the
insurer is notified that the owner has canceled the policy. begin delete The
premium and policy fee shall be refunded by the insurer to the
owner within 30 days from the date that the insurer is notified that
the owner has canceled the policy. end delete

(2) In the case of begin delete a end delete begin insert end insert begin insert individual variable life insurance policies
and individual end insert variable annuity begin insert end insert begin insert contracts end insert for which the owner has
directed that the premium be invested in the mutual funds
underlying the begin delete contract end delete begin insert policy end insert during the 30-day cancellation
period, cancellation shall entitle the owner to a refund of the
account value begin insert end insert begin insert and any policy fee paid for the policy end insert . The account
value shall be refunded by the insurer to the owner within 30 days
from the date that the insurer is notified that the owner has canceled
the begin delete contract end delete begin insert end insert begin insert policy end insert .

(b) This section applies to all individual begin delete policies end delete begin insert end insert begin insert life insurance
policies and all individual annuity contracts end insert issued or delivered
to senior citizens in this state on or after January 1, 2004. All
policies subject to this section which are in effect on January 1,
2003, shall be construed to be in compliance with this section, and
any provision in any policy which is in conflict with this section
shall be of no force or effect.

(c) Every individual begin insert nonvariable end insert life insurance policy and every
individual begin insert nonvariable end insert annuity contract, begin delete other than variable
contracts and end delete begin insert including end insert modified guaranteed begin insert annuity end insert contracts,
subject to this section, that is delivered or issued for delivery in
this state shall have the following notice begin delete either end delete printed on the cover
page begin delete or policy jacket end delete in 12-point bold print with one inch of space
on all begin delete sides or printed on a sticker that is affixed to the cover page
or policy jacket end delete begin insert sides, using the exact language in quotation marks
below, with whichever one of the three bracketed product
descriptions that applies to the product on which the notice
appears end insert :

begin delete

“IMPORTANT

end delete begin delete

YOU HAVE PURCHASED A LIFE INSURANCE POLICY
OR ANNUITY CONTRACT. CAREFULLY REVIEW IT FOR
LIMITATIONS.

end delete begin delete

THIS POLICY MAY BE RETURNED WITHIN 30 DAYS
FROM THE DATE YOU RECEIVED IT FOR A FULL REFUND
BY RETURNING IT TO THE INSURANCE COMPANY OR
AGENT WHO SOLD YOU THIS POLICY. AFTER 30 DAYS,
CANCELLATION MAY RESULT IN A SUBSTANTIAL
PENALTY, KNOWN AS A SURRENDER CHARGE.”

end delete begin insert

“IMPORTANT!

end insert begin insert

You have purchased a [life insurance policy or annuity contract
or modified guaranteed annuity contract]. Carefully review it for
limitations.

end insert begin insert

This policy may be returned within 30 days from the date you
received it for a full refund by returning it to the insurance
company or agent who sold you this policy. After 30 days,
cancellation may result in a substantial penalty, known as a
surrender charge.”

end insert
begin insert end insert

The begin delete phrase “after end delete begin insert sentence “After end insert 30 days, cancellation may
result in a substantial penalty, known as a surrender charge” may
be deleted if the policy does not contain begin delete those charges or penalties. end delete
begin insert a surrender charge. The phrase “known as a surrender charge”
may be deleted if the policy contains a penalty but no surrender
charge. Whether a charge constitutes a surrender charge or a
penalty shall be determined by the nature of the charge and not
the name given to the charge by the insurer. end insert

(d) Every individual begin insert variable life insurance policy and every
individual end insert variable annuity contract begin delete , variable life insurance
contract, or modified guaranteed contract end delete subject to this section,
that is delivered or issued for delivery in this state, shall have the
following notice begin delete either end delete printed on the cover page begin delete or policy jacket end delete
in 12-point bold print with one inch of space on all begin delete sides or printed
on a sticker that is affixed to the cover page or policy jacket end delete begin insert sides,
using the exact language in quotation marks below, with whichever
one of the two bracketed product descriptions that applies to the
product on which the notice appears end insert :

begin delete

“IMPORTANT

end delete begin delete

YOU HAVE PURCHASED A VARIABLE ANNUITY
CONTRACT (VARIABLE LIFE INSURANCE CONTRACT,
OR MODIFIED GUARANTEED CONTRACT). CAREFULLY
REVIEW IT FOR LIMITATIONS.

end delete begin delete

THIS POLICY MAY BE RETURNED WITHIN 30 DAYS
FROM THE DATE YOU RECEIVED IT. DURING THAT
30-DAY PERIOD, YOUR MONEY WILL BE PLACED IN A
FIXED ACCOUNT OR MONEY-MARKET FUND, UNLESS
YOU DIRECT THAT THE PREMIUM BE INVESTED IN A
STOCK OR BOND PORTFOLIO UNDERLYING THE
CONTRACT DURING THE 30-DAY PERIOD. IF YOU DO
NOT DIRECT THAT THE PREMIUM BE INVESTED IN A
STOCK OR BOND PORTFOLIO, AND IF YOU RETURN THE
POLICY WITHIN THE 30-DAY PERIOD, YOU WILL BE
ENTITLED TO A REFUND OF THE PREMIUM AND POLICY
FEES. IF YOU DIRECT THAT THE PREMIUM BE INVESTED
IN A STOCK OR BOND PORTFOLIO DURING THE 30-DAY
PERIOD, AND IF YOU RETURN THE POLICY DURING THAT
PERIOD, YOU WILL BE ENTITLED TO A REFUND OF THE
POLICY’S ACCOUNT VALUE ON THE DAY THE POLICY
IS RECEIVED BY THE INSURANCE COMPANY OR AGENT
WHO SOLD YOU THIS POLICY, WHICH COULD BE LESS
THAN THE PREMIUM YOU PAID FOR THE POLICY. A
RETURN OF THE POLICY AFTER 30 DAYS MAY RESULT
IN A SUBSTANTIAL PENALTY, KNOWN AS A SURRENDER
CHARGE.”

end delete begin insert

“IMPORTANT!

end insert begin insert

You have purchased a [variable life insurance policy or variable
annuity contract]. Carefully review it for limitations.

end insert begin insert

This policy may be returned within 30 days from the date you
received it. During that 30-day period, your money will be placed
in a fixed account or money-market fund, unless you direct that
the premium be invested in a stock or bond portfolio underlying
the policy during the 30-day period. If you do not direct that the
premium be invested in a stock or bond portfolio, and if you return
the policy within the 30-day period, you will be entitled to a refund
of the premium and any policy fee paid. If you direct that the
premium be invested in a stock or bond portfolio during the 30-day
period, and if you return the policy during that period, you will
be entitled to a refund of the policy’s account value on the day the
policy is received by the insurance company or agent who sold
you this policy, which could be less than the premium you paid for
the policy, plus any policy fee paid. A return of the policy after 30
days may result in a substantial penalty, known as a surrender
charge.”

end insert
begin insert end insert

The begin delete words “known end delete begin insert sentence “A return of the policy after 30
days may result in a substantial penalty, known end insert as a surrender
charge” may be deleted if the begin delete contract end delete begin insert policy end insert does not contain
begin delete those charges end delete begin insert a surrender charge. The phrase “known as a
surrender charge” may be deleted if the policy contains a penalty
but no surrender charge. Whether or not a charge constitutes a
surrender charge or a penalty will be determined by the nature of
the charge and not the name given to the charge by the insurer end insert .

begin insert

(e) If the individual annuity contract is an immediate annuity
contract, the following sentence, using the exact language in
quotation marks below, in 12-point bold print, shall be added at
the end of the right to examine language required by this section
and before the one inch of space:

end insert
begin insert end insert
begin insert

“After the 30-day period has expired, you may not be able to
get your purchase payment money back in any manner, or in any
manner other than in annuity payments made according to the
terms of your contract. The insurance company or agent who sold
you this contract can explain if your contract has these
restrictions.”

end insert
begin insert end insert
begin delete

(e)

end delete

begin insert (f) end insert  This section does not apply to life insurance policies issued
in connection with a credit transaction or issued under a contractual
policy-change or conversion privilege provision contained in a
policy. begin delete Additionally, this section shall not apply to contributory
and noncontributory employer group life insurance, contributory
and noncontributory employer group annuity contracts, and group
term life insurance, with the exception of subdivision (f). end delete

begin delete

(f) When an insurer, its agent, group master policyowner, or
association collects more than one month’s premium from a senior
citizen at the time of application or at the time of delivery of a
group term life insurance policy or certificate, the insurer must
provide the senior citizen a prorated refund of the premium if the
senior citizen delivers a cancellation request to the insurer during
the first 30 days of the policy period.

end delete

(g) For purposes of this chapter, a senior citizen means an
individual who is 60 years of age or older on the date of purchase
of the policy.

begin insert

(h) General references to “policy” or “policies” in this section
refer to both life insurance policies and annuity contracts.

end insert

SEC. 4.  

Section 10127.13 of the Insurance Code is amended
to read:

10127.13.  

begin insert (a) end insert begin insert   end insert All individual life insurance policies and
individual annuity contracts for senior citizens that contain a
surrender charge begin delete period end delete shall begin delete either disclose the surrender period
and all associated penalties in 12-point bold print on the cover
sheet of the policy or end delete disclose the location of the surrender
begin delete information end delete begin insert charge, surrender charge period, and surrender
charge information, as well as any associated penalty information, end insert
in bold 12-point print on the cover page of the begin delete policy, or printed
on a sticker that is affixed to the cover page or to the policy jacket. end delete
begin insert policy. end insert The notice required by this section may appear on a cover
sheet that also contains the disclosure required by subdivision (d)
of Section 10127.10.

begin insert

(b) The notice required by subdivision (a) shall be set forth on
the single cover page of the policy that also contains any statutorily
required notice regarding a right to examine.

end insert begin insert

(c) General references to “policy” in this section refer to both
life insurance policies and annuity contracts.

end insert

SEC. 5.  

Section 10509.6 of the Insurance Code is amended to
read:

10509.6.  

Every life insurer that uses an agent in a life insurance
or annuity sale shall do the following:

(a) Require with or as part of each completed application for
life insurance or annuity, a statement signed by the agent as to
whether he or she knows replacement is or may be involved in the
transaction.

(b) Where a replacement is involved:

(1) Require from the agent with the application for life insurance
or annuity: (i) a list of all of the applicant’s existing life insurance
or annuity to be replaced, and (ii) a copy of the replacement notice
provided the applicant pursuant to Section 10509.4. The existing
life insurance or annuity shall be identified by name of insurer,
insured, and contract number. If a number has not been assigned
by the existing insurer, alternative identification, such as an
application or receipt number shall be listed.

(2) Send to each existing life insurer a written communication
advising of the replacement or proposed replacement and the
identification information obtained pursuant to this section and a
policy summary, contract summary, or ledger statement containing
policy data on the proposed life insurance or annuity. Cost indices
and equivalent level annual dividend figures need not be included
in the policy summary or ledger statement. This written
communication shall be made within three working days of the
date the application is received in the replacing insurer’s home or
regional office, or the date the proposed policy or contract is issued,
whichever is sooner.

(3) Every existing life insurer or the insurer’s agent that
undertakes a conservation shall, within 20 days from the date the
written communication plus the materials required in subdivisions
(1) and (2) are received by the existing insurer, furnish the
policyowner with a policy summary for the existing life insurance
or ledger statement containing policy data on the existing policy
or annuity. Information relating to premiums, cash values, death
benefits, and dividends, if any, shall be computed from the current
policy year of the existing life insurance. The policy summary or
ledger statement shall include the amount of any outstanding
indebtedness, the sum of any dividend accumulations or additions,
and may include any other information that is not in violation of
any regulation or statute. Cost indices and equivalent level annual
dividend figures need not be included. When annuities are
involved, the disclosure information shall be that in the contract
summary.

The replacing insurer may request the existing insurer to furnish
it with a copy of the summaries or ledger statement, which shall
be within five working days of the receipt of the request.

(c) The replacing insurer shall maintain evidence of the “notice
regarding replacement,” the policy summary, the contract summary,
and any ledger statements used, and a replacement register,
cross-indexed by replacing agent and existing insurer to be
replaced. The existing insurer shall maintain evidence of policy
summaries, contract summaries, or ledger statements used in any
conservation. Evidence that all requirements were met shall be
maintained for at least three years.

(d) The replacing insurer shall provide begin delete in its policy or in end delete begin insert on the
cover page of its life insurance policy or annuity contract or,
alternatively, as end insert a separate written begin delete notice end delete begin insert document end insert which is
delivered with the begin insert life insurance end insert policy begin insert or annuity contract, a
notice stating end insert that the begin delete applicant end delete begin insert owner end insert has a right to an
unconditional refund of all premiums paid which right may be
exercised within a period of 30 days commencing from the date
of delivery of the begin delete policy end delete begin insert contract end insert . In the case of variable begin delete annuity
contracts, end delete begin insert annuities, and end insert variable life begin delete insurance contracts, and
modified guaranteed contracts, end delete begin insert insurance, end insert return of the contract
during the cancellation period shall entitle the owner to a refund
of begin insert the end insert account value and any policy fee begin delete paid for the policy. end delete begin insert paid. end insert
The account value and policy fee shall be refunded by the insurer
to the owner within 30 days from the date that the insurer is notified
that the owner has canceled the begin delete policy. end delete begin insert contract. end insert