California Acts

The going is getting tougher for insurance agents who use high pressure or misleading tactics to sell annuities or life insurance to seniors. Starting January 1, 2004, agents in California face new restrictions in the ways they may market these products to older individuals -- restrictions prompted by legislators' concerns that annuities and life insurance are sometimes sold to seniors using deceptive or arm-twisting methods. For most provisions of the law, a "senior" is a person age 65 or older.

The new restrictions and other changes in California's insurance code are the result of Senate Bills 620 and 618, signed into law in September 2003. Both bills were sponsored by Senator Jack Scott (D-Pasadena). According to Alison Merrilees, a consultant to Senator Scott who helped shepherd the bills through the legislative process, "The majority of insurance agents are honest, but there is also a significant minority willing to take advantage of seniors. The senators heard testimony in committee about some of these abuses, including stories of agents who would not leave a senior's home until the senior agreed to purchase a product."

Meetings in a Senior's Home
The new law requires that before an insurance agent visits a senior's home to sell an annuity or life insurance, the agent must provide written notice in 14-point type that the senior will be given a sales presentation on life insurance, annuities, or other insurance products. The notice must also:

	List the names of others who will accompany the agent to the meeting, and provide their insurance license information, if applicable.
	Advise the senior that the senior may invite family members, attorneys, or financial advisors to attend the meeting, and that the senior may end the meeting at any time

Unnecessary Replacement Policies
Another section of the new law prohibits agents from using materially inaccurate presentations to persuade seniors to purchase replacement policies. Agents often receive a commission when a policyholder replaces an older policy or annuity with a new one. Often, too, a replacement policy or annuity starts a new several-year period when it cannot be surrendered without penalty.

In the case of an annuity, an unnecessary replacement is defined as one that

	requires the insured to pay a surrender charge for the annuity that is being replaced and
	does not confer substantial financial benefit over the life of the new annuity to the purchaser (so that a reasonable person would believe that the purchase is unnecessary).

Other Protections
SB 620 and 618 include additional restrictions, including:

	An annuity sale to a senior that is supposed to help the senior qualify for Medi-Cal assistance is prohibited, if the senior's purpose in purchasing the annuity is to affect Medi-Cal eligibility and the senior's assets are equal to or less than the Medi-Cal community spouse resource allowance ($92,760 as of January 1, 2004) or the senior would otherwise qualify for Medi-Cal or after the purchase of the annuity, the senior or the senior's spouse would not qualify for Medi-Cal.
	If a senior purchases an annuity in order to qualify for Medi-Cal, and the senior or the senior's spouse still does not qualify after the purchase, then the senior may cancel the annuity and receive a refund. If the senior has purchased a fixed annuity, then he or she will be refunded all premiums, fees, interest earned, and any other costs that were paid for the annuity. If the senior has purchased a variable annuity, then the senior will be refunded the account value.
	The new law makes it easier for seniors to receive a full refund if they cancel an annuity contract within 30 days after purchase. While the old law provided for a 30-day "free look" period, the new law states that the annuity must be invested in fixed-income accounts during this 30-day period, so that a full refund can be made. A senior can waive this provision, but if the provision is waived and the annuity is invested in variable accounts, the senior might receive only a partial refund. For this provision, a "senior" is someone age 60 or older.
	An agent or broker may not share a commission or other compensation (including a bonus, gift, prize, award or finder's fee) with an active member of the California bar, unless the agent or broker is also an active member of the California bar. This section of the new law prevents California attorneys from recommending life insurance or annuities to seniors and then referring them to insurance agents in return for a share of the commission or other compensation.
	The new law includes several measures to prevent misleading advertisements, including advertisements that imply incorrectly that a particular insurer or insurance product is endorsed by any governmental agencies, non-profit or charitable organizations.
	Effective January 1, 2005, agents must satisfactorily complete eight hours of training before selling annuities. This training will cover, among other topics, prohibited sales practices and ways to recognize that a senior may lack the short-term memory and judgment needed to assess a policy or annuity.
	SB 618 increases the fines against insurers and agents for misrepresentation and fraudulent activities. It also protects seniors from an agent who induces them to co-sign or make a loan, make an investment or a gift or provide any future benefit to the agent (with some exceptions). Likewise, with certain exceptions, an agent cannot persuade or recommend to a senior that the senior make the agent a beneficiary of the senior's will, life insurance policy or annuity.

February 2004