text:
(a) A producer shall not solicit the sale of an annuity product unless the producer has adequate knowledge of the product to recommend the annuity and the producer is in compliance with the insurer’s standards for product training. A producer may rely on insurer-provided product-specific training standards and materials to comply with this subdivision.

(b) (1) A producer who is otherwise entitled to engage in the sale of annuity products shall complete a one-time eight credit-hour annuity training course approved by the commissioner and provided by a commissioner-approved education provider, prior to commencing the transaction of annuities, pursuant to subdivision (a) of Section 1749.8.

(2) In addition to the requirement set forth in paragraph (1), every producer who engages in this state in the sale of annuity products shall satisfactorily complete four continuing education credits prior to license renewal every two years, pursuant to subdivision (b) of Section 1749.8.

(3) The training required under this subdivision shall include information on all of the following topics:

(A) The types of annuities and various classifications of annuities.

(B) Identification of the parties to an annuity.

(C) How fixed, variable, and indexed annuity contract provisions affect consumers.

(D) The application of income taxation of qualified and nonqualified annuities.

(E) The primary uses of annuities.

(F) Prohibited sales practices, the recognition of indicators that a prospective insured may lack the short-term memory or judgment to knowingly purchase an insurance product, and fraudulent and unfair trade practices, as well as replacement and disclosure requirements for sales of annuities, all as provided under California law, including, but not limited to, this article.

(4) Providers of courses intended to comply with this section shall cover all topics listed in the prescribed outline and shall not present any marketing information or provide training on sales techniques or provide specific information about a particular insurer’s products. Additional topics may be offered in conjunction with and in addition to the required outline.

(5) A provider of an annuity training course intended to comply with this section shall register as a CE provider in this state and comply with the rules and guidelines applicable to producer continuing education courses as set forth in Section 1749.8, in subdivisions (d) and (e) of Section 1749.1, and in Sections 2188, 2188.1, 2188.2, 2188.3, 2188.4, 2188.50, 2188.6, 2188.7, 2188.8, and 2188.9 of Title 10 of the California Code of Regulations.

(6) Annuity training courses may be conducted and completed by classroom or self-study methods in accordance with Sections 2188.2 and 2188.3 of Title 10 of the California Code of Regulations.

(7) Providers of annuity training shall comply with the reporting requirements and shall issue certificates of completion in accordance with Section 2188.8 of Title 10 of the California Code of Regulations.

(8) An insurer shall verify that a producer has completed the annuity training required under this section before allowing the producer to sell an annuity product for that insurer. An insurer may satisfy its responsibility under this paragraph by obtaining certificates of completion of the training course or obtaining reports provided by commissioner-sponsored database systems or vendors or from a reasonably reliable commercial database vendor that has a reporting arrangement with approved insurance education providers.

history: (History: Amended by Stats. 2024, Ch. 2, Sec. 4. (SB 263) Effective January 1, 2025.)


kind: section

code: INS

text:
(a) An insurer is responsible for compliance with this article. If a violation occurs, either because of the action or inaction of the insurer or its insurance producer, the commissioner may, in addition to any other available penalties, remedies, or administrative actions, order any or all of the following:

(1) An insurer to take reasonably appropriate corrective action for any consumer harmed by the insurer’s, or by its insurance producer’s, violation of this article.

(2) A managing general agent or an insurance producer to take reasonably appropriate corrective action for any consumer harmed by the insurance producer’s violation of this article.

(3) Penalties and sanctions pursuant to Section 10509.9. For purposes of Section 10509.9, this article shall be deemed to be part of Article 8 (commencing with Section 10509), and the commissioner may in a single enforcement action seek penalties for a first and a second or subsequent violation.

(b) Nothing in this article shall affect any obligation of an insurer for acts of its agents, or any consumer remedy or cause of action that is otherwise provided for.

history: (History: Added by Stats. 2011, Ch. 295, Sec. 2. (AB 689) Effective January 1, 2012.)

division: 2. CLASSES OF INSURANCE

part: 2. LIFE AND DISABILITY INSURANCE

chapter: 5. General Regulation of Life Insurers

path: 2. CLASSES OF INSURANCE > 2. LIFE AND DISABILITY INSURANCE > 5. General Regulation of Life Insurers > 9. Suitability Requirements for Annuity Transactions before January 1, 2025


text:
(a) Insurers and insurance producers shall maintain or be able to make available to the commissioner records of the information collected from the consumer and other information used in making the recommendations that were the basis for insurance transactions for five years after the insurance transaction is completed by the insurer. An insurer is permitted, but shall not be required, to maintain documentation on behalf of an insurance producer.

(b) Records required to be maintained by this article may be maintained in paper, photographic, microprocess, magnetic, mechanical, or electronic media, or by any process that accurately reproduces the actual document.

article: 9. Suitability Requirements for Annuity Transactions before January 1, 2025


text: The commissioner shall, from time to time as conditions warrant, after notice and hearing, adopt reasonable rules and regulations, and amendments and additions thereto, as are necessary to administer this article. The commissioner may adopt regulations not inconsistent with this article pursuant to Section 989J of the federal Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111-203).


text:
This article shall apply to both of the following:

(a) A recommendation of an annuity made before January 1, 2025, that results in the purchase, exchange, or replacement that was recommended.

(b) A sale of an annuity made before January 1, 2025, that is not based on a recommendation.

history: (History: Added by Stats. 2024, Ch. 2, Sec. 5. (SB 263) Effective January 1, 2025.)


text: This act shall be known and may be cited as the Life Insurance Proceeds Disclosure Act of 2011.

history: (History: Added by Stats. 2011, Ch. 130, Sec. 1. (SB 713) Effective January 1, 2012.)

path: 2. CLASSES OF INSURANCE > 2. LIFE AND DISABILITY INSURANCE > 5. General Regulation of Life Insurers > 11. Life Insurance Proceeds Disclosure Act of 2011


text:
The Legislature finds and declares all of the following:

(a) The occasion of the death of a spouse, parent, child, partner, or other loved one is a difficult time, accompanied by severe emotional stress, and is frequently a time of important and often difficult financial decisions.

(b) Life insurance is intended to provide an important resource to support and ease financial decisions at such a time.

(c) While life insurance policies may provide for a single payment of the death benefit, policies may also offer alternative payout options, including the use of a retained asset account.

(d) The inherent difficulty of financial decisions at such a time may be eased if consumers know what their available payment options are so they can receive the benefit of available life insurance policy proceeds in the form best suited to their circumstances and needs.

article: 11. Life Insurance Proceeds Disclosure Act of 2011


text: The purpose of this act is to establish disclosure standards regarding the payment of life insurance benefits to a beneficiary by means of a retained asset account if a life insurance company offers consumers a retained asset account or establishes such an account as an alternative to the receipt of insurance proceeds by a single payment made directly to the beneficiary that satisfies all of the benefits owed to the beneficiary.


text:
For the purposes of this article, the following terms have the following definitions:

(a) “Insurer” means an insurance company that delivers or issues for delivery in this state any policy of individual or group life insurance.

(b) “Retained asset account” means any mechanism where the settlement of proceeds payable under a life insurance policy is accomplished by the insurer, or an entity acting on behalf of the insurer, by depositing the proceeds into an account with check or draft writing privileges, and where those proceeds are retained by the insurer, pursuant to a supplemental contract not involving annuity benefits.


text: The insurer shall provide the beneficiary of life insurance proceeds, at the time a claim is made, written information describing the settlement options available under the policy and any other option available to the beneficiary for the receipt of proceeds, including retained asset accounts, and how to obtain specific details relevant to those options. If a retained asset account is one of the available options, the written information shall include all of the disclosures required by Section 10509.937.


text: If the insurer settles life insurance benefits through a retained asset account, the insurer shall provide the beneficiary with a supplemental contract that clearly discloses the rights of the beneficiary and the obligations of the insurer under the supplemental contract.


text: If the life insurance benefits are placed in a retained asset account, the insurer shall send the beneficiary at least one statement per quarter, and a statement for any month in which there has been account activity other than just the crediting of interest.


text:
The insurer shall provide the following written disclosures to the beneficiary before the retained asset account is established, unless the insurer has already provided these disclosures pursuant to Section 10509.934:

(a) Payment of the full benefit is accomplished by delivery of the draft book or checkbook.

(b) One draft or check may be written to access the entire amount, including interest, of the retained asset account at any time.

(c) Whether the available settlement options are preserved until the entire balance is withdrawn or the balance drops below the insurer’s minimum balance requirements.

(d) A statement identifying the account as either a checking or draft account and an explanation of how the account works, including, but not limited to, any minimum check or draft amount requirements.

(e) Information about the account services provided and contact information where the beneficiary may request and obtain more details about those services.

(f) A description of any fees charged, if applicable.

(g) The frequency of statements showing the current account balance, the interest credited, drafts or checks written, and any other account activity. The insurer shall send the beneficiary at least one statement per quarter, and a statement for any month in which there has been account activity other than just the crediting of interest.

(h) The guaranteed minimum interest rate to be credited to the account, how the actual interest rate will be determined, and the actual interest rate that would be credited to a newly opened account as of the date the disclosure is issued. The actual interest rate may be disclosed by the insurer with the disclosures provided with the claim documents sent to the beneficiary, through a toll-free telephone number established by the insurer, or through the insurer’s Internet Web site.

(i) That the interest earned on the account may be taxable.

(j) Retained asset account funds held by insurance companies are not guaranteed by the Federal Deposit Insurance Corporation (FDIC), but are guaranteed by State Guaranty Associations, and that the State Guaranty Association coverage limits vary by state.

(k) A statement that advises the beneficiary to contact the National Organization of Life and Health Insurance Guaranty Associations (NOLHGA) to learn more about the coverage limitations applicable to his or her account, and that provides the beneficiary with the current Internet Web site address and telephone number for NOLHGA.

(l) A description of the insurer’s policy regarding retained asset accounts that become inactive, including the policy with respect to inactive accounts that are at risk of escheating to the state pursuant to the California Unclaimed Property Law (Chapter 7 (commencing with Section 1500) of Title 10 of Part 3 of the Code of Civil Procedure).


text: An insurer that fails to conform to the requirements provided under this article shall be subject to Article 6.5 (commencing with Section 790) of Chapter 1 of Part 2 of Division 1.


text: This act shall be known and may be cited as the Unclaimed Life Insurance and Annuities Act.

history: (History: Added by Stats. 2019, Ch. 286, Sec. 1. (SB 740) Effective January 1, 2020.)

path: 2. CLASSES OF INSURANCE > 2. LIFE AND DISABILITY INSURANCE > 5. General Regulation of Life Insurers > 12. Unclaimed Life Insurance and Annuities Act


text:
The purpose of this article is to provide standards for:

(a) Identifying a deceased individual whose death may require an insurer to pay benefits or proceeds to beneficiaries in accordance with the terms of a life insurance policy, annuity contract, or retained asset account.

(b) Locating beneficiaries of a deceased individual and providing appropriate claims forms or instructions to the beneficiaries to make a claim.

article: 12. Unclaimed Life Insurance and Annuities Act


text:
For purposes of this article:

(a) “Annuity contract” does not include an annuity used to fund an employment-based retirement plan or program if either of the following applies:

(1) The insurer does not perform the recordkeeping services.

(2) The insurer is not committed by the terms of the annuity contract to pay death benefits to the beneficiaries of specific plan participants.

(b) “Asymmetric conduct” means an insurer’s use of the Death Master File before July 1, 2020, solely for purposes other than determining whether one of its insureds may be deceased in order to locate and pay beneficiaries.

(c) “Beneficiary” or “beneficiaries” means the person or persons entitled or contingently entitled to receive the proceeds from a policy, an annuity contract, or a retained asset account.

(d) “Death Master File” means the United States Social Security Administration’s Death Master File or any other database or service that is at least as comprehensive and accurate as the United States Social Security Administration’s Death Master File for determining that an individual has reportedly died.

(e) “Death Master File match” means a search of the Death Master File that results in a match of the social security number, individual taxpayer identification number, or name and date of birth of an insured that is made and validated in accordance with the requirements of subdivision (a) of Section 10509.944.

(f) “Insured” means an individual identified in a policy, retained asset account, or annuity contract whose death obligates the insurer to pay benefits or proceeds to a beneficiary or beneficiaries.

(g) “Knowledge of death” means any of the following:

(1) Receipt of an original or valid copy of a certified death certificate.

(2) A Death Master File match.

(3) Any other information in an insurer’s records from which the insurer should know that the insured has died.

(h) “Lapse” means the termination of a policy resulting from nonpayment of premiums or, in the case of variable life and universal life insurance policies, the depletion of cash value below the amount needed to keep the policy in force.

(i) “Policy” means a policy or certificate of life insurance that provides a death benefit. “Policy” does not include any of the following:

(1) A policy or certificate of life insurance that provides a death benefit under an employee welfare benefit plan subject to the federal Employee Retirement Income Security Act of 1974 (ERISA) for which the insurer does not provide recordkeeping services, or under any federal employee benefit program.

(2) A funeral insurance contract, as defined in Section 10240.

(3) A policy or certificate of credit life insurance as defined in Section 779.2.

(4) An accidental death or health policy, rider, or certificate, including, but not limited to, a disability or long-term care policy, rider, or certificate.

(5) A joint and survivor annuity contract, if an annuitant is still living.

(6) A policy issued to a group master policyholder for which the insurer does not provide recordkeeping services.

(j) “Recordkeeping services” means circumstances under which an insurer has agreed with a group life insurance policyholder or contractholder to be responsible for obtaining, maintaining, and administering, in its own or its agents’ systems, at least all of the following information about each individual insured under an insured’s group insurance contract or a line of coverage:

(1) Social security number, individual taxpayer identification number, or name and date of birth.

(2) Beneficiary designation information.

(3) Coverage eligibility.

(4) Benefit amount.

(5) Premium payment status.

(k) “Records” means information regarding policies, annuity contracts, and retained asset accounts maintained in an insurer’s administrative systems or the administrative systems of a third party retained by the insurer. “Records” does not include information regarding policies, annuity contracts, and retained asset accounts maintained by a group life insurance policyholder or contractholder, or information that has been deleted from an insurer’s administrative system consistent with this act and the insurer’s record retention and destruction policies.

(l) “Retained asset account” means a mechanism whereby the settlement of proceeds payable under a policy or individual annuity contract, including, but not limited to, the payment of cash surrender value, is accomplished by the insurer or an entity acting on behalf of the insurer establishing an account with check or draft writing privileges, if those proceeds are retained by the insurer, pursuant to a supplementary contract not involving annuity benefits.

(m) “Retained asset accountholder” means the owner of a retained asset account or other person to file a claim for, or otherwise receive proceeds in accordance with the terms of, the retained asset account.

(n) “Thorough search” means reasonable and good faith efforts, documented by an insurer, to identify a beneficiary, determine a current address for the beneficiary, and contact the beneficiary.


text:
(a) This article applies to an in-force policy, annuity contract, or retained asset account, a policy or annuity contract effective on or after July 1, 2020, and a policy that has lapsed on or after January 1, 2019, if the insurer has not engaged in asymmetric conduct.

(b) This article applies to a policy, annuity contract, or retained asset account described in subdivision (a) if one of the following applies:

(1) The insurer is domiciled in this state.

(2) The policy, annuity contract, or retained asset account was issued or delivered in this state.


text:
(a) An insurer shall comply with the following requirements for performing a comparison of a policy, annuity contract, or retained asset account against the Death Master File:

(1) An insurer that has engaged in asymmetric conduct shall compare all in-force policies, annuity contracts, and retained asset accounts and policies that have lapsed from the date it first used the Death Master File to July 1, 2020, against the complete Death Master File to identify potential matches of its insureds.

(2) An insurer that has not engaged in asymmetric conduct shall compare all in-force policies, annuity contracts, and retained asset accounts and policies that have lapsed on or after January 1, 2019, against the complete Death Master File to identify potential matches of its insureds.

(3) If an insurer meets one of the following criteria on July 1, 2020, the insurer is not required to conduct the comparison specified in paragraph (1) or (2) for any in-force policies:

(A) The insurer has entered into a regulatory settlement agreement with the department regarding claims handling practices and the use of the Death Master File.

(B) The insurer has received a targeted market conduct examination report issued by an insurance regulator for a multistate examination regarding claims handling practices and the use of the Death Master File, and the report did not find violations of law.

(4) After an initial review as specified in paragraph (1) or (2), or if an insurer is exempted from paragraphs (1) and (2) pursuant to paragraph (3), an insurer shall compare all in-force policies, annuity contracts, and retained asset accounts and policies that have lapsed within the last 18 months against any updates to the Death Master File at least semiannually to identify potential matches of its insureds. If the insurer conducts a Death Master File search for policies, annuities, or retained asset accounts more frequently than semiannually, the insurer shall conduct a Death Master File search of all policies, annuities, or retained asset accounts with the same frequency.

(5) (A) Except as provided in subparagraph (B), within six months of acquisition of a policy or annuity contract from another insurer, the acquiring insurer shall compare all newly acquired policies and annuity contracts that were not searched by the previous insurer against the complete Death Master File to identify potential matches of its insureds and annuitants.

(B) Upon acquisition of a policy or annuity contract from another insurer, if the previous insurer has already conducted a search of the newly acquired policies and annuity contracts using the complete Death Master File, the acquiring insurer shall compare all newly acquired policies and annuity contracts using all of the Death Master File updates since the time the previous insurer conducted the complete search to identify potential matches of its insureds and annuitants.

(6) In addition to accounting for exact matches of names, social security numbers, individual taxpayer identification numbers, and dates of birth of insureds, an insurer also shall conduct the comparisons required under this section following reasonable procedures that account for all of the following:

(A) Common nicknames, initials used in lieu of a first or middle name, use of a middle name, compound first and middle names, and interchanged first and middle names.

(B) Compound last names, surname given at birth or married names, and hyphens, blank spaces or apostrophes in last names.

(C) Transposition of the month and date numerals in the date of birth.

(D) Incomplete social security number or individual taxpayer identification number.

(E) Common data entry errors that account for transposed numbers.

(7) Upon identifying a potential match pursuant to this section, an insurer shall promptly make reasonable good faith efforts to validate the match by confirming the death of an insured.

(b) (1) Upon receipt of information establishing knowledge of death of an insured, other than if an insurer has made a match pursuant to subdivision (a), the insurer shall check its records to determine whether the insurer has any other policies, annuity contracts, or retained asset accounts for that insured.

(2) Upon receipt of information establishing knowledge of death of an insured the insurer shall do both of the following:

(A) Notify each United States affiliate, parent, or subsidiary company of the insurer, as appropriate, and any entity with which the insurer contracts that may maintain or control records related to policies, annuity contracts, or retained asset accounts of the knowledge of death or match pursuant to subdivision (a).

(B) Make a reasonable and good faith effort to ensure that each affiliate, parent, or subsidiary company of the insurer or other entity performs a check of their records to determine whether they have any other policies, annuity contracts, or retained asset accounts for that insured.

(c) If an insurer has not been contacted by a beneficiary within 120 days of an insurer’s receipt of information establishing the insurer’s knowledge of death of an insured, the insurer shall conduct a thorough search, which shall be completed within one year from the date the insurer received that information.

(d) An insurer may disclose the minimum necessary personal information about an insured or beneficiary to a person to whom the insurer reasonably believes may be able to assist the insurer to locate a beneficiary or a person otherwise entitled to payment of the proceeds. The insurer shall not implement policies or practices that may diminish the rights of, or amounts of proceeds due to, beneficiaries under its policies, annuity contracts, or retained asset accounts.

(e) An insurer or its service provider may not charge a beneficiary or other authorized representative for any fees or costs associated with a Death Master File search or verification of a Death Master File match conducted pursuant to this section.

(f) If the insurer locates a beneficiary, within 15 days after the date of location, the insurer shall provide appropriate claims forms or instructions to the beneficiary to make a claim if the insurer has not already received a claim from that beneficiary.

(g) If an insurer fails to locate a beneficiary following a thorough search, the insurer shall report and remit the proceeds pursuant to Section 1515 of the Code of Civil Procedure.

(h) (1) Except as provided in paragraph (2), at no later than the policy delivery or the establishment of an account, and upon a change of insured or beneficiary, an insurer shall request information from the insured sufficient to ensure that all benefits or proceeds are distributed to the appropriate persons upon the death of the insured, including, at a minimum, the name, address, date of birth, social security number or individual taxpayer identification number, and telephone number of every insured and beneficiary of a policy or account.

(2) If an insurer issues a policy or provides an account based on information received directly from an insured’s employer, the insurer may obtain the beneficiary information described in paragraph (1) by communicating with the insured after the insurer’s receipt of the information from the insured’s employer.


text:
(a) Failure to meet a requirement of this article knowingly or with such frequency as to constitute a general practice is an unfair and deceptive act pursuant to Section 790.03.

(b) This article does not create or imply a private right of action for a violation of this article.

(c) Unless otherwise expressly provided, the remedies or penalties provided for by this article are cumulative to each other and to the remedies or penalties available under all other laws.


text: The provisions of this article are severable. If any provision of this article or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.


text: In order to protect consumers and foster consumer education, this chapter shall govern the regulation of life insurance policy illustrations. It is the intent of the Legislature in enacting this chapter to ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable by providing illustration formats, prescribing standards to be followed when illustrations are used, and specifying the disclosures that are required in connection with illustrations. Insurers should, as far as possible, eliminate the use of footnotes and caveats and define terms used in the illustration in language that is understandable by a typical person within the segment of the public to which the illustration is directed.

history: (History: Added by Stats. 1996, Ch. 1106, Sec. 1. Effective January 1, 1997. Section operative July 1, 1997, pursuant to Section 10509.965.)

path: 2. CLASSES OF INSURANCE > 2. LIFE AND DISABILITY INSURANCE > 5.5. Life Insurance Policy Illustrations


text:
This chapter shall apply to all group and individual life insurance policies and certificates except as follows:

(a) Variable life insurance.

(b) Individual and group annuity contracts.

(c) Credit life insurance.

(d) Life insurance policies with no illustrated death benefits on any individual exceeding ten thousand dollars ($10,000).

chapter: 5.5. Life Insurance Policy Illustrations


text:
As used in this chapter:

(a) “Actuarial Standards Board” means the board established by the American Academy of Actuaries to develop and promulgate standards of actuarial practice.

(b) “Contract premium” means the gross premium that is required to be paid under a fixed premium policy, including the premium for a rider for which benefits are shown in the illustration.

(c) “Currently payable scale” means a scale of nonguaranteed elements in effect for a policy form as of the preparation date of the illustration or declared to become effective within the next 95 days.

(d) “Disciplined current scale” means a scale of nonguaranteed elements constituting a limit on illustrations currently being illustrated by an insurer that is reasonably based on actual recent historical experience, as certified annually by an illustration actuary designated by the insurer. Further guidance in determining the disciplined current scale as contained in standards established by the Actuarial Standards Board may be relied upon if the standards meet all of the following:

(1) Have not been found to be inconsistent with the provisions of this chapter by the commissioner after a hearing held in accordance with Sections 11500 to 11530, inclusive, of the Government Code.

(2) Limit a disciplined current scale to reflect only actions that have already been taken or events that have already occurred.

(3) Do not permit a disciplined current scale to include any projected trends of improvements in experience or any assumed improvements in experience beyond the illustration date.

(4) Do not permit assumed expenses to be less than minimum assumed expenses.

(e) “Generic name” means a short title descriptive of the policy being illustrated such as whole life, “term life” or “flexible premium adjustable life.”

(f) “Guaranteed elements” means the premiums, benefits, values, credits or charges under a policy of life insurance that are guaranteed and determined at issue.

(g) “Illustrated scale” means a scale of nonguaranteed elements currently being illustrated that is not more favorable to the policy owner than the lesser of either of the following:

(1) The disciplined current scale.

(2) The currently payable scale.

(h) “Illustration” means a presentation or depiction that includes nonguaranteed elements of a policy of life insurance over a period of years and that is one of the three types defined below:

(1) “Basic illustration” means a ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and nonguaranteed elements.

(2) “Supplemental illustration” means an illustration furnished in addition to a basic illustration that meets the applicable requirements of this regulation, and that may be presented in a format differing from the basic illustration, but may only depict a scale of nonguaranteed elements that is permitted in a basic illustration.

(3) “In force illustration” means an illustration furnished at any time after the policy that it depicts has been in force for one year or more.

(i) “Illustration actuary” means an actuary meeting the requirements of Section 10509.960 who certifies to illustrations based on the standard of practice promulgated by the Actuarial Standards Board.

(j) “Lapse-supported illustration” means an illustration of a policy form failing the test of self-supporting as defined in this chapter, under a modified persistency rate assumption using persistency rates underlying the disciplined current scale for the first five years and 100 percent policy persistency thereafter.

(k) “Life insurance” means insurance upon the lives of persons or appertaining thereto.

(l) (1) “Minimum assumed expenses” means the minimum expenses that may be used in the calculation of the disciplined current scale for a policy form. The insurer may choose to designate each year the method of determining assumed expenses for all policy forms from all of the following:

(A) Fully allocated expenses.

(B) Marginal expenses.

(C) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the commissioner.

(2) Marginal expenses may be used only if greater than a generally recognized expense table. If no generally recognized expense table is approved, fully allocated expenses must be used.

(m) “Non-guaranteed elements” means the premiums, benefits, values, credits or charges under a policy of life insurance that are not guaranteed or not determined at issue.

(n) “Non-term group life” means a group policy or individual policies of life insurance issued to members of an employer group or other permitted group that includes all of the following:

(1) Every plan of coverage was selected by the employer or other group representative.

(2) Some portion of the premium is paid by the group or through payroll deduction.

(3) Group underwriting or simplified underwriting is used.

(o) “Policy owner” means the owner named in the policy or the certificate holder in the case of a group policy.

(p) “Premium outlay” means the amount of premium assumed to be paid by the policy owner or other premium payer out-of-pocket.

(q) “Self-supporting illustration” means an illustration of a policy form for which it can be demonstrated that, when using experience assumptions underlying the disciplined current scale, for all illustrated points in time on or after the 15th policy anniversary or the 20th policy anniversary for second-or-later-to-die policies (or upon policy expiration if sooner), the accumulated value of all policy cash-flows equals or exceeds the total policy owner value available. For this purpose, policy owner value will include cash surrender values and any other illustrated benefit amounts available at the policy owner’s election.


text:
(a) Each insurer marketing policies to which this chapter is applicable shall notify the commissioner whether a policy form is to be marketed with or without an illustration. For all policy forms being actively marketed on the effective date of this chapter, the insurer shall identify in writing those forms and whether or not an illustration will be used with them. For policy forms filed after the effective date of this chapter, the identification shall be made at the time of filing. Any previous identification may be changed by notice to the commissioner.

(b) If the insurer identifies a policy form as one to be marketed without an illustration, any use of an illustration for any policy using that form prior to the first policy anniversary is prohibited.

(c) If a policy form is identified by the insurer as one to be marketed with an illustration, a basic illustration prepared and delivered in accordance with this chapter is required, except that a basic illustration need not be provided to individual members of a group or to individuals insured under multiple lives coverage issued to a single applicant unless the coverage is marketed to these individuals. The illustration furnished an applicant for a group life insurance policy or policies issued to a single applicant on multiple lives may be either an individual or composite illustration representative of the coverage on the lives of members of the group or the multiple lives covered.

(d) Potential enrollees of nonterm group life subject to this chapter shall be furnished a quotation with the enrollment materials. The quotation shall show potential policy values for sample ages and policy years on a guaranteed and nonguaranteed basis appropriate to the group and the coverage. This quotation shall not be considered an illustration for purposes of this chapter, but all information provided shall be consistent with the illustrated scale. A basic illustration shall be provided at delivery of the certificate to enrollees for nonterm group life who enroll for more than the minimum premium necessary to provide pure death benefit protection. In addition, the insurer shall make a basic illustration available to any nonterm group life enrollee who requests it.


text:
(a) An illustration used in the sale of a life insurance policy shall satisfy the applicable requirements of this chapter, be clearly labeled “life insurance illustration,” and include, but not be limited to, the following information:

(1) Name of insurer.

(2) Name and business address of producer or insurer’s authorized representative, if any.

(3) Name, age and sex of proposed insured, except where a composite illustration is permitted under this chapter.

(4) Underwriting or rating classification upon which the illustration is based.

(5) Generic name of the policy, the company product name, if different, and form number.

(6) Initial death benefit.

(7) Dividend option election or application of nonguaranteed elements, if applicable.

(b) When using an illustration in the sale of a life insurance policy, an insurer or its producers or other authorized representatives shall not do any of the following:

(1) Represent the policy as anything other than a life insurance policy.

(2) Use or describe nonguaranteed elements in a manner that is misleading or has the capacity or tendency to mislead.

(3) State or imply that the payment or amount of nonguaranteed elements is guaranteed.

(4) Use an illustration that does not comply with the requirements of this chapter.

(5) Use an illustration that at any policy duration depicts policy performance more favorable to the policy owner than that produced by the illustrated scale of the insurer whose policy is being illustrated.

(6) Provide an applicant with an incomplete illustration.

(7) Represent in any way that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact.

(8) Use the term “vanishing” or “vanishing premium,” or a similar term that implies the policy becomes paid up, to describe a plan for using nonguaranteed elements to pay a portion of future premiums.

(9) Except for policies that can never develop nonforfeiture values, use an illustration that is “lapse-supported.”

(10) Use an illustration that is not “self-supporting.”

(c) If an interest rate used to determine the illustrated nonguaranteed elements is shown, it shall not be greater than the earned interest rate underlying the disciplined current scale.


text:
(a) A basic illustration shall conform with the following requirements:

(1) The illustration shall be labeled with the date on which it was prepared.

(2) Each page, including any explanatory notes or pages, shall be numbered and show its relationship to the total number of pages in the illustration.

(3) The assumed dates of payment receipt and benefit payout within a policy year shall be clearly identified.

(4) If the age of the proposed insured is shown as a component of the tabular detail, it shall be issue age plus the numbers of years the policy is assumed to have been in force.

(5) The assumed payments on which the illustrated benefits and values are based shall be identified as premium outlay or contract premium, as applicable. For policies that do not require a specific contract premium, the illustrated payments shall be identified as premiums outlay.

(6) Guaranteed death benefits and values available upon surrender, if any, for the illustrated premium outlay or contract premium shall be shown and clearly labeled guaranteed.

(7) If the illustration shows any nonguaranteed elements, they cannot be based on a scale more favorable to the policy owner than the insurer’s illustrated scale at any duration. These elements shall be clearly labeled nonguaranteed.

(8) The guaranteed elements, if any, shall be shown before corresponding nonguaranteed elements and shall be specifically referred to on any page of an illustration that shows or describes only the nonguaranteed elements.

(9) The account or accumulation value of a policy, if shown, shall be identified by the name this value is given in the policy being illustrated and shown in close proximity to the corresponding value available upon surrender.

(10) The value available upon surrender shall be identified by the name this value is given in the policy being illustrated and shall be the amount available to the policy owner in a lump sum after deduction of surrender charges, policy loans, and policy loan interest, as applicable.

(11) Illustrations may show policy benefits and values in graphic or chart form in addition to the tabular form.

(12) Any illustration of nonguaranteed elements shall be accompanied by a statement indicating that:

(A) The benefits and values are not guaranteed.

(B) The assumptions on which they are based are subject to change by the insurer.

(C) Actual results may be more or less favorable.

(13) If the illustration shows that the premium payer may have the option to allow policy charges to be paid using nonguaranteed values, the illustration shall clearly disclose that a charge continues to be required and that, depending on actual results, the premium payer may need to continue or resume premium outlays. Similar disclosure shall be made for premium outlay of lesser amounts or shorter durations than the contract premium. If a contract premium is due, the premium outlay display shall not be left blank or show zero unless accompanied by an asterisk or similar mark to draw attention to the fact that the policy is not paid up.

(14) If the applicant plans to use dividends or policy values, guaranteed or nonguaranteed, to pay all or a portion of the contract premium or policy charges, or for any other purpose, the illustration may reflect those plans and the impact on future policy benefits and values.

(b) A basic illustration shall include all of the following:

(1) A brief description of the policy being illustrated, including a statement that it is a life insurance policy.

(2) A brief description of the premium outlay or contract premium, as applicable, for the policy. For a policy that does not require payment of a specific contract premium, the illustration shall show the premium outlay that must be paid to guarantee coverage for the term of the contract, subject to maximum premiums allowable to qualify as a life insurance policy under the applicable provisions of the Internal Revenue Code.

(3) A brief description of any policy features, riders or options, guaranteed or nonguaranteed, shown in the basic illustration and the impact they may have on the benefits and values of the policy.

(4) Identification and a brief definition of column headings and key terms used in the illustration.

(5) A statement as follows: “This illustration assumes that the currently illustrated nonguaranteed elements will continue unchanged for all years shown. This is not likely to occur, and actual results may be more or less favorable than those shown.”

(c) (1) Following the narrative summary, a basic illustration shall include a numeric summary of the death benefits and values and the premium outlay and contract premium, as applicable. For a policy that provides for a contract premium, the guaranteed death benefits and values shall be based on the contract premium. This summary shall be shown for at least policy years 5, 10, and 20 and at age 70, if applicable, on the three bases shown below. For multiple life policies the summary shall show policy years 5, 10, 20, and 30.

(A) Policy guarantees.

(B) Insurer’s illustrated scale.

(C) Insurer’s illustrated scale used but with the nonguaranteed elements reduced as follows:

(i) Dividends at 50 percent of the dividends contained in the illustrated scale used.

(ii) Nonguaranteed credited interest at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(iii) All nonguaranteed charges, including but not limited to, term insurance charges, mortality and expense charges, at rates that are the average of the guaranteed rates and the rates contained in the illustrated scale used.

(2) In addition, if coverage would cease prior to policy maturity or age 100, the year in which coverage ceases shall be identified for each of the three bases.

(d) Statements substantially similar to the following shall be included on the same page as the numeric summary and signed by the applicant, or the policy owner in the case of an illustration provided at time of delivery, as required in this chapter.

(1) A statement to be signed and dated by the applicant or policy owner reading as follows: “I have received a copy of this illustration and understand that any nonguaranteed elements illustrated are subject to change and could be either higher or lower. The agent has told me they are not guaranteed.”

(2) A statement to be signed and dated by the insurance producer or other authorized representative of the insurer reading as follows: “I certify that this illustration has been presented to the applicant and that I have explained that any nonguaranteed elements illustrated are subject to change. I have made no statements that are inconsistent with the illustration.”

(e) (1) A basic illustration shall include the following information for at least each policy year from 1 to 10 and for every fifth policy year thereafter ending at age 100, policy maturity or final expiration; and except for term insurance beyond the 20th year, for any year in which the premium outlay and contract premium, if applicable, is to change:

(A) The premium outlay and mode the applicant plans to pay and the contract premium, as applicable.

(B) The corresponding guaranteed death benefit, as provided in the policy.

(C) The corresponding guaranteed value available upon surrender, as provided in the policy.

(2) For a policy that provides for a contract premium, the guaranteed death benefit and value available upon surrender shall correspond to the contract premium.

(3) Nonguaranteed elements may be shown if described in the contract. In the case of an illustration for a policy on which the insurer intends to credit terminal dividends, they may be shown if the insurer’s current practice is to pay terminal dividends. If any nonguaranteed elements are shown they must be shown at the same durations as the corresponding guaranteed elements, if any. If no guaranteed benefit or value is available at any duration for which a nonguaranteed benefit or value is shown, a zero shall be displayed in the guaranteed column.


text:
(a) A supplemental illustration may be provided if it meets all of the following requirements:

(1) It is appended to, accompanied by, or preceded by a basic illustration that complies with this chapter.

(2) The nonguaranteed elements shown are not more favorable to the policy owner than the corresponding elements based on the scale used in the basic illustration.

(3) It contains the same statement as required of a basic illustration under subdivision (d) of Section 10509.956 that nonguaranteed elements are not guaranteed.

(4) For a policy that has a contract premium, the contract premium underlying the supplemental illustration is equal to the contract premium shown in the basic illustration. For policies that do not require a contract premium, the premium outlay underlying the supplemental illustration shall be equal to the premium outlay shown in the basic illustration.

(b) The supplemental illustration shall include a notice referring to the basic illustration for guaranteed elements and other important information.

(c) If cost indices are required by Chapter 5.6 (commencing with Section 10509.970), they may be provided by means of a supplemental illustration or included in the basic illustration. Those indices shall be based on nonguaranteed elements calculated according to the standards required in this chapter.


text:
(a) (1) If a basic illustration is used by an insurance producer or other authorized representative of the insurer in the sale of a life insurance policy and the policy is applied for as illustrated, a copy of that illustration, signed in accordance with this chapter, shall be submitted to the insurer at the time of the policy application. A copy also shall be provided to the applicant.

(2) If the policy is issued other than as applied for, a revised basic illustration conforming to the policy as issued shall be sent with the policy. The revised illustration shall conform to the requirements of this chapter, shall be labeled “Revised Illustration” and shall be signed and dated by the applicant or policy owner and producer or other authorized representative of the insurer no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

(b) (1) If no illustration is used by an insurance producer or other authorized representative in the sale of a life insurance policy or if the policy is applied for other than as illustrated, the producer or representative shall certify to that effect in writing on a form provided by the insurer. On the same form the applicant shall acknowledge that no illustration conforming to the policy applied for was provided and shall further acknowledge an understanding that an illustration conforming to the policy as issued will be provided no later than at the time of policy delivery. This form shall be submitted to the insurer at the time of policy application.

(2) If the policy is issued, a basic illustration conforming to the policy as issued shall be sent with the policy and signed by the policy owner no later than the time the policy is delivered. A copy shall be provided to the insurer and the policy owner.

(c) If the basic illustration or revised illustration is sent by the insurer to the applicant or policy owner by mail, it shall include instructions for the applicant or policy owner to sign the duplicate copy of the numeric summary page of the illustration for the policy issued and return the signed copy to the insurer. The insurer’s obligation under this subdivision shall be satisfied if it can demonstrate that it has made a diligent effort to secure a signed copy of the numeric summary page. The requirement to make a diligent effort shall be deemed satisfied if the insurer includes in the mailing a self-addressed postage prepaid envelope with instructions for the return of the signed numeric summary page.

(d) A copy of the basic illustration and a revised basic illustration, if any, signed as applicable, along with any certification that either no illustration was used or that the policy was applied for other than as illustrated, shall be retained by the insurer until three years after the policy is no longer in force. A copy need not be retained if no policy is issued.


text:
(a) In the case of a policy designated as one for which illustrations will be used, the insurer shall provide each policy owner with an annual report on the status of the policy that shall include, but not be limited to, the following information:

(1) For universal life policies, the report shall include the following:

(A) The beginning and end date of the current report period.

(B) The policy value at the end of the previous report period and at the end of the current report period.

(C) The total amounts that have been credited or debited to the policy value during the current report period, identifying each by type, including, but not limited to, interest, mortality, expense and riders.

(D) The current death benefit at the end of the current report period on each life covered by the policy.

(E) The net cash surrender value of the policy as of the end of the current report period.

(F) The amount of outstanding loans, if any, as of the end of the current report period.

(G) For fixed premium policies:

If, assuming guaranteed interest, mortality and expense loads and continued scheduled premium payments, the policy’s net cash surrender value is such that it would not maintain insurance in force until the end of the next reporting period, a notice to this effect shall be included in the report.

(H) For flexible premium policies:

If, assuming guaranteed interest, mortality and expense loads, the policy’s net cash surrender value will not maintain insurance in force until the end of the next reporting period unless further premium payments are made, a notice to this effect shall be included in the report.

(2) For all other policies, the report shall include the following, where applicable:

(A) Current death benefit.

(B) Annual contract premium.

(C) Current cash surrender value.

(D) Current dividend.

(E) Application of current dividend.

(F) Amount of outstanding loan.

(3) Insurers writing life insurance policies that do not build nonforfeiture values shall only be required to provide an annual report with respect to these policies for those years when a change has been made to nonguaranteed policy elements by the insurer.

(b) If the annual report does not include an in force illustration, it shall contain the following notice displayed prominently: “IMPORTANT POLICY OWNER NOTICE: You should consider requesting more detailed information about your policy to understand how it may perform in the future. You should not consider replacement of your policy or make changes in your coverage without requesting a current illustration. You may annually request, without charge, such an illustration by calling [insurer’s phone number], writing to [insurer’s address] or contacting your agent. If you do not receive a current illustration of your policy within thirty days from your request, you should contact your state insurance department.” The insurer may vary the sequential order of the methods for obtaining an in force illustration.

(c) Upon the request of the policy owner, the insurer shall furnish an in force illustration of current and future benefits and values based on the insurer’s present illustrated scale. This illustration shall comply with the requirements of subdivisions (a) and (b) of Section 10509.955 and subdivisions (a) and (e) of Section 10509.956. No signature or other acknowledgment of receipt of this illustration shall be required.

(d) If an adverse change in nonguaranteed elements that could affect the policy has been made by the insurer since the last annual report, the annual report shall contain a notice of that fact and the nature of the change prominently displayed.


text:
(a) The board of directors of each insurer shall appoint one or more illustration actuaries.

(b) The illustration actuary shall certify that the disciplined current scale used in illustrations is in conformity with the Actuarial Standard of Practice for Compliance with the NAIC Model Regulation on Life Insurance Illustrations promulgated by the Actuarial Standards Board, and that the illustrated scales used in insurer-authorized illustrations meet the requirements of this chapter.

(c) The illustration actuary shall comply with all of the following:

(1) Be a member in good standing of the American Academy of Actuaries.

(2) Be familiar with the standard of practice regarding life insurance policy illustrations.

(3) Not been found by the commissioner, following appropriate notice and hearing, to have engaged in or committed any of the following acts:

(A) Violated any provision of, or any obligation imposed by, the insurance law or other law in the course of his or her dealings as an illustration actuary.

(B) Been found guilty of fraudulent or dishonest practices.

(C) Demonstrated his or her incompetence, lack of cooperation, or untrustworthiness to act as an illustration actuary.

(D) Resigned or been removed as an illustration actuary within the past five years as a result of acts or omissions indicated in any adverse report on examination or as a result of a failure to adhere to generally acceptable actuarial standards.

(4) Notify the commissioner of any acts engaged in or committed in another state that are similar to those described in paragraph (3).

(5) Disclose in the annual certification whether, since the last certification, a currently payable scale applicable for business issued within the previous five years and within the scope of the certification has been reduced for reasons other than changes in the experience factors underlying the disciplined current scale. Nonguaranteed elements illustrated for new policies that are not consistent with those illustrated for similar in force policies shall be disclosed in the annual certification. Nonguaranteed elements illustrated for both new and in force policies that are not consistent with the nonguaranteed elements actually being paid, charged or credited to the same or similar forms shall be disclosed in the annual certification.

(6) Disclose in the annual certification the method used to allocate overhead expenses for all illustrations including:

(A) Fully allocated expenses.

(B) Marginal expenses.

(C) A generally recognized expense table based on fully allocated expenses representing a significant portion of insurance companies and approved by the commissioner.

(d) (1) The illustration actuary shall file a certification with the board of directors of the insurer and with the commissioner as follows:

(A) Annually for all policy forms for which illustrations are used.

(B) Before a new policy form is illustrated.

(2) If an error in a previous certification is discovered, the illustration actuary shall notify the board of directors of the insurer and the commissioner promptly.

(e) If an illustration actuary is unable to certify the scale for any policy form illustration the insurer intends to use, the actuary shall notify the board of directors of the insurer and the commissioner promptly of his or her inability to certify.

(f) A responsible officer of the insurer, other than the illustration actuary, shall certify annually the following:

(1) The illustration formats meet the requirements of this chapter and the scales used in insurer-authorized illustrations are those scales certified by the illustration actuary.

(2) The company provided its agents with information about the expense allocation method used by the company in its illustrations and complied with the disclosure requirements of paragraph (6) of subdivision (c).

(g) The annual certifications shall be provided to the commissioner each year by a date determined by the insurer.

(h) If an insurer changes the illustration actuary responsible for all or a portion of the company’s policy forms, the insurer shall notify the commissioner of that fact promptly and disclose the reason for the change.


text: In addition to any other penalties provided by law, an insurer or producer that violates any provision of this chapter shall be subject to Section 790.06.


text: The provisions of this chapter are severable. If any provision of this chapter or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.


text:
If the commissioner has reason to believe that any insurer has violated this chapter, the commissioner may request and the insurer shall file both of the following:

(a) An example of the annual report to the policy owner with notice of adverse change in nonguaranteed elements.

(b) An example of an illustration.

history: (History: Amended by Stats. 1997, Ch. 17, Sec. 89. Effective January 1, 1998.)


text: Review by the commissioner of illustrations, supporting materials, certifications, and any and all other materials prepared pursuant to this chapter shall be subject to Section 736.


text: This chapter shall become effective on and after July 1, 1997, and shall apply to policies sold on or after that date.

history: (History: Added by Stats. 1996, Ch. 1106, Sec. 1. Effective January 1, 1997. Note: This section prescribes a delayed effective (operative) date of July 1, 1997, for Chapter 5.5, commencing with Section 10509.950.)


text: It is the purpose of this chapter to assure prospective purchasers of life insurance that, when a presentation is made showing or comparing the cost of life insurance over a period of years which does not recognize the time value of money, it shall be accompanied by a presentation which recognizes the time value of money.

history: (History: Added by Stats. 1996, Ch. 1106, Sec. 2. Effective January 1, 1997.)

chapter: 5.6. Life Insurance Cost Indexes

path: 2. CLASSES OF INSURANCE > 2. LIFE AND DISABILITY INSURANCE > 5.6. Life Insurance Cost Indexes


text:
(a) If, in connection with the selling of life insurance to which this chapter applies, an agent or insurer makes a presentation showing or comparing the cost of life insurance over a period of years which does not recognize the time value of money, the agent or insurer shall at the same time present the Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index which shall be calculated for both a 10-year and a 20-year period.

(b) An agent or insurer may use any other system or form of presentation for comparing the cost of life insurance over a period of years which recognizes the time value of money, including the Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index computed at an interest rate other than 5 percent.

(c) If the Life Insurance Surrender Cost Index or the Life Insurance Net Payment Cost Index is used, it need not be provided for a period which extends beyond the end of the premium payment period for the plan. The Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index shall be accompanied by an explanation substantially to the effect that the Life Insurance Surrender Cost Index and the Life Insurance Net Payment Cost Index are measures of the relative cost of similar plans of insurance, and that a low index number represents a lower cost than a higher index number.


text:
(a) The Life Insurance Surrender Cost Index for level premium plans of insurance shall be calculated by applying the steps in the following paragraphs:

(1) Select either a 10-year or a 20-year period, commencing with the first year of the policy, over which the analysis is to be made.

(2) Determine the cash surrender value, and terminal dividend, if any, available at the end of the period selected.

(3) For participating policies, accumulate the annual cash dividends at 5 percent interest compounded annually to the end of the period selected and add this accumulation to the amount in paragraph (2).

(4) Divide the amount in paragraph (3), or the amount in paragraph (2) for nonparticipating policies, by an interest factor that converts it into a level annual amount accruing over the period selected in paragraph (1). If the period is 10 years, this factor is 13.207, and if the period is 20 years, the factor is 34.719.

(5) Subtract the amount in paragraph (4) from the annual premium payable.

(6) Divide the amount in paragraph (5) by the number of thousands of the amount of insurance to arrive at the Life Insurance Surrender Cost Index.

(b) The Life Insurance Surrender Cost Index for plans of insurance with premiums which are not level shall be calculated as follows:

(1) Select either a 10-year or a 20-year period, commencing with the first year of the policy, over which the analysis is to be made.

(2) Determine the cash surrender value, and terminal dividend, if any, available at the end of the period selected.

(3) For participating policies, accumulate the annual cash dividends at 5 percent interest compounded annually to the end of the period selected and add this accumulation to the amount in paragraph (2).

(4) Divide the amount in paragraph (3), or the amount in paragraph (2) for nonparticipating policies, by an interest factor that converts it into a level annual amount accruing over the period selected in paragraph (1). If the period is 10 years, this factor is 13.207, and if the period is 20 years, the factor is 34.719.

(5) Subtract the amount in paragraph (4) from the equivalent level premium determined by accumulating the annual premium payable at 5 percent interest compounded annually to the end of the period in paragraph (1) and dividing the result by the factor stated in paragraph (4).

(6) Divide the amount in paragraph (5) by the number of thousands of the amount of insurance to arrive at the Life Insurance Surrender Cost Index.

(c) For plans of insurance where the amount of insurance is not level, the amount of insurance in paragraph (6) of subdivision (a) and paragraph (6) of subdivision (b) shall be calculated as follows:

(1) Accumulate the amount payable upon death, regardless of the cause of death, at the beginning of each policy year at 5 percent interest compounded annually to the end of the period selected in paragraph (1) of subdivision (a) or paragraph (1) of subdivision (b).

(2) Divide the amount in paragraph (1) by an interest factor that converts it into a level amount of insurance that, if paid at the beginning of each year, would accrue to the amount of paragraph (1) over the period selected in paragraph (1) of subdivision (a) or paragraph (1) of subdivision (b). If this period is 10 years, this factor is 13.207, and if the period is 20 years, the factor is 34.719.

(d) The Life Insurance Net Payment Cost Index is calculated in the same manner as the comparable Life Insurance Surrender Cost Index except that the cash surrender value and any terminal dividend are set at zero.


text: Any comparison must be used with caution and should not be emphasized to the point that actual premiums and policy benefits are overshadowed. Only similar plans of insurance should be compared. Any dividend or nonguaranteed element used in calculating the Life Insurance Surrender Cost Index or the Life Insurance Net Payment Cost Index shall be based on nonguaranteed elements calculated according to the standards required in Chapter 5.5 (commencing with Section 10509.950). With respect to participating policies, care must be taken to describe the policy dividend as a refund or return of part of the premium paid, which is not guaranteed and which is dependent on the investment earnings, mortality experience, and expense experience of the insurer.


text:
(a) Except as provided in subdivision (b), this chapter shall apply to any solicitation, negotiation, or procurement of life insurance occurring within this state.

(b) This chapter shall not apply to:

(1) Variable life insurance.

(2) Individual and group annuity contracts.

(3) Credit life insurance.

(4) Life insurance policies with no illustrated death benefits on any individual exceeding ten thousand dollars ($10,000).

(5) Franchise life insurance.

(6) Group term life insurance.

(7) Life insurance policies issued in connection with pension and welfare plans as defined by and subject to the federal Employee Retirement Income Security Act (29 U.S.C. Sec. 1001 and following), as amended.

history: (History: Amended by Stats. 1998, Ch. 379, Sec. 2. Effective January 1, 1999.)


text:
(a) A life insurer shall provide to all prospective insureds a buyer’s guide prior to accepting the applicant’s initial premium or premium deposit. However, if the policy for which application is made contains an unconditional refund provision of at least 10 days, the buyer’s guide shall be delivered with the policy or prior to delivery of the policy.

(b) For the purposes of this chapter, a buyer’s guide is a document that contains, and is limited to, the current buyer’s guide recommended for use by the National Association of Insurance Commissioners.

history: (History: Amended by Stats. 1997, Ch. 17, Sec. 90. Effective January 1, 1998.)


text: The purpose of this article is to require producers, as defined in Section 10509.9203, to act in the best interest of the consumer when making a recommendation of an annuity and to require insurers to establish, maintain, and utilize a system to supervise recommendations and to set forth standards and procedures for recommendations to consumers that result in transactions involving annuities, so that the insurance needs and financial objectives of consumers at the time of the transaction are effectively addressed. This article does not create or imply a private cause of action for a violation of this article or subject a producer to civil liability under the best interest standard of care outlined in Section 10509.9204 or under standards governing the conduct of a fiduciary relationship.

history: (History: Added by Stats. 2024, Ch. 2, Sec. 6. (SB 263) Effective January 1, 2025.)

path: 2. CLASSES OF INSURANCE > 2. LIFE AND DISABILITY INSURANCE > 5. General Regulation of Life Insurers > 9.5. Suitability Requirements for Annuity Transactions on or after January 1, 2025


text:
(a) This article shall apply to any sale of, or recommendation made to a consumer to purchase, exchange, or replace, as defined in paragraph (14) of subdivision (a) of Section 10509.9203, an annuity.

(b) This article does not preclude, preempt, or otherwise interfere with the application of any other laws of this state that may apply in any matter involving the sale of an annuity that is subject to this article.

article: 9.5. Suitability Requirements for Annuity Transactions on or after January 1, 2025


text:
Unless otherwise specifically included, this article shall not apply to transactions involving any of the following:

(a) Direct response solicitations where there is no recommendation based on information collected from the consumer pursuant to this article.

(b) Contracts used to fund any of the following:

(1) An employee pension or welfare benefit plan that is covered by the federal Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. Sec. 1001 et seq.).

(2) A plan described by Section 401(a), 401(k), 403(b), 408(k), or 408(p) of the Internal Revenue Code (IRC), as amended, if established or maintained by an employer.

(3) A government or church plan defined in Section 414 of the IRC, a government or church welfare benefit plan, or a deferred compensation plan of a state or local government or tax-exempt organization under Section 457 of the IRC.

(4) A nonqualified deferred compensation arrangement established or maintained by an employer or plan sponsor.

(5) Settlements of or assumptions of liabilities associated with personal injury litigation or any dispute or claim resolution process.

(6) Formal prepaid funeral contracts.


text:
(a) For purposes of this article:

(1) “Annuity” means an annuity that is an insurance product under California law that is individually solicited, whether the product is classified as an individual or group annuity.

(2) “Cash compensation” means any discount, concession, fee, service fee, commission, sales charges, loan, override, or cash benefit received by a producer in connection with the recommendation or sale of an annuity from an insurer, intermediary, or directly from a consumer.

(3) “Consumer profile information” means information that is reasonably appropriate to determine whether a recommendation addresses the consumer’s financial situation, insurance needs, and financial objectives, including, at a minimum, the following:

(A) Age.

(B) Annual income.

(C) Financial situation and needs, including debts and other obligations, and the financial resources used for the funding of the annuity.

(D) Financial experience.

(E) Insurance needs.

(F) Financial objectives.

(G) Intended use of the annuity, including any riders attached thereto.

(H) Financial time horizon, including the duration of existing liabilities and obligations.

(I) Existing assets or financial products, including investments, annuity, and insurance holdings.

(J) Liquidity needs.

(K) Liquid net worth.

(L) Risk tolerance, including, but not limited to, the willingness to accept nonguaranteed elements in the annuity.

(M) Tax status.

(N) Whether or not the consumer has a reverse mortgage.

(O) Whether or not the consumer intends to apply for means-tested government benefits, including Medi-Cal or the veterans’ aid and attendance benefit.

(P) Any other relevant information that the producer or the insurer knew or reasonably should have known about, as provided by the consumer.

(4) “Continuing education credit” or “CE credit” means one continuing education credit hour as defined in Section 2188.2(i) of Title 10 of the California Code of Regulations.

(5) “Continuing education provider” or “CE provider” means an individual or entity that is certified to offer continuing education courses pursuant to Section 2186.1(b) and Section 2188 of Title 10 of the California Code of Regulations.

(6) “FINRA” means the Financial Industry Regulatory Authority or a successor agency.

(7) “Insurer” means a company required to be licensed or to hold a certificate of authority, or both, under California law to provide insurance products, including annuities.

(8) “Intermediary” means an entity contracted directly with an insurer or with another entity contracted with an insurer to facilitate the sale of the insurer’s annuities by producers.

(9) “Material conflict of interest” means a financial interest of the producer in the sale of an annuity that a reasonable person would expect to influence the impartiality of a recommendation. “Material conflict of interest” does not include cash compensation or noncash compensation.

(10) “Noncash compensation” means any form of compensation that is not cash compensation, including, but not limited to, health insurance, office rent, office support, and retirement benefits.

(11) “Nonguaranteed elements” means the premiums, benefits, values, credits, charges, and other elements not guaranteed over the life of the annuity, such as credited interest rates, including any temporary bonus interest rate, dividends, noninterest-based credits, index parameters, periodic expense charges, or elements of formulas used to determine any of these nonguaranteed elements, that are subject to insurer discretion and are not guaranteed at issue. An element is considered nonguaranteed if any of the underlying nonguaranteed elements are used in its calculation.

(12) “Producer” means a person required to be licensed under California law to sell, solicit, or negotiate insurance, including annuities. “Producer” includes an insurer when no producer is involved.

(13) (A) “Recommendation” means advice or guidance provided or made by a producer or an insurer to an individual consumer that was intended to result or does result in a purchase, exchange, or replacement of an annuity in accordance with that advice or guidance.

(B) “Recommendation” does not include general communication to the public, generalized customer services assistance or administrative support, general educational information and tools, prospectuses, or other product and sales material.

(14) “Replacement” means a transaction in which a new annuity policy or contract is to be purchased, and it is known or should be known to the proposing producer, or to the proposing insurer, whether or not a producer is involved, that by reason of the transaction, an existing annuity or insurance policy has been or is to be any of the following:

(A) Lapsed, forfeited, surrendered or partially surrendered, assigned to the replacing insurer, or otherwise terminated.

(B) Converted to reduced paid-up insurance, continued as extended term insurance, or otherwise reduced in value by the use of nonforfeiture benefits or other policy values.

(C) Amended so as to effect either a reduction in benefits or a reduction in the term for which coverage would otherwise remain in force or for which benefits would be paid.

(D) Reissued with any reduction in cash value.

(E) Used in a financed purchase.

(15) “SEC” means the United States Securities and Exchange Commission.


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Insurers and producers have the following duties to ensure that annuities that are recommended are in the consumer’s best interest:

(a) Best Interest Obligations. A producer, when making a recommendation of an annuity, shall act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or insurer’s financial interest ahead of the consumer’s interest. A producer has acted in the best interest of the consumer if they have satisfied all of the following obligations regarding care, disclosure, conflict of interest, and documentation:

(1) Care Obligation.

(A) The producer, in making a recommendation, shall exercise reasonable diligence, care, and skill to:

(i) Know the consumer’s financial situation, financial needs, insurance needs, and financial objectives.

(ii) Understand the available recommendation options after making a reasonable inquiry into options available to the producer.

(iii) Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, financial needs, insurance needs, and financial objectives over the life of the annuity, as evaluated in light of the consumer profile information.

(iv) Have a reasonable basis to believe that the consumer would receive a tangible net benefit from the transaction over the life of the product.

(v) Communicate the basis or bases of the recommendation to the consumer orally and in writing and to the insurer in writing.

(B) The producer’s or insurer’s recommendation to the consumer shall be based on an evaluation of the consumer’s relevant consumer profile information and other relevant information, and shall reflect the care, skill, prudence, and diligence that a reasonable producer with similar authority and licensure who is familiar with those matters would use under the circumstances then prevailing.

(C) The requirements under subparagraphs (A) and (B) include making reasonable efforts to obtain consumer profile information from the consumer prior to the recommendation of an annuity.

(D) The requirements under subparagraphs (A) and (B) require a producer to consider the types of products the producer is authorized and licensed to recommend or sell that address the consumer’s financial situation, insurance needs, and financial objectives. This does not require analysis or consideration of any products outside the authority and license of the producer or other possible alternative products or strategies available in the market at the time of the recommendation. Producers shall be held to standards applicable to producers with similar authority and licensure.

(E) This subdivision does not create a fiduciary obligation or relationship and only creates a regulatory obligation as established in this article.

(F) The consumer profile information, characteristics of the insurer, and product costs, rates, benefits, and features are factors generally relevant in making a determination whether an annuity effectively addresses the consumer’s financial situation, financial needs, insurance needs, and financial objectives, but the level of importance of each factor under the care obligation of this paragraph may vary depending on the facts and circumstances of a particular case. However, each factor shall not be considered in isolation.

(G) The requirements under subparagraphs (A) and (B) include having a reasonable basis to believe the consumer would benefit from certain features of the annuity, such as annuitization, death or living benefit, or other insurance-related features.

(H) The requirements under subparagraphs (A) and (B) apply to the particular annuity as a whole and the underlying subaccounts to which funds are allocated at the time of purchase or exchange of an annuity, and riders and similar product enhancements, if any.

(I) The requirements under subparagraphs (A) and (B) do not mean the annuity with the lowest one-time or multiple occurrence compensation structure shall necessarily be in the best interest of the consumer.

(J) The requirements under subparagraphs (A) and (B) do not mean the producer has ongoing monitoring obligations under the care obligation under this paragraph, although such an obligation may be separately owed under the terms of a fiduciary, consulting, investment advising, or financial planning agreement between the consumer and the producer.

(K) In the case of an exchange or replacement of an annuity, the producer shall consider the whole transaction, which includes taking into consideration all of the following:

(i) Whether the consumer will incur a surrender charge, be subject to the commencement of a new surrender period, lose existing benefits, such as death, living, or other contractual benefits, or be subject to increased fees, investment advisory fees, or charges for riders or similar product enhancements.

(ii) Whether the replacing product would not confer a substantial financial benefit to the consumer in comparison to the replaced product over the life of the product so that a reasonable person would believe the purchase is unnecessary.

(iii) Whether the consumer has had another annuity or life insurance policy exchange or replacement and, in particular, an exchange or replacement within the preceding 60 months.

(L) This article does not require a producer to obtain a license other than a producer license with the appropriate line of authority to sell, solicit, or negotiate insurance in this state, including, but not limited to, a securities license, in order to fulfill the duties and obligations of this section provided the producer does not give advice or provide services that are otherwise subject to securities laws or engage in any other activity requiring other professional licenses.

(2) Disclosure Obligation.

(A) Before or at the time of recommendation, or before or at the time of sale if no recommendation is made, of an annuity, the producer shall prominently disclose all of the following information to the consumer on a form substantially similar to the “Insurance Agent (Producer) Disclosure for Annuities” form in Appendix A of the 2020 National Association of Insurance Commissioners’ (NAIC) Suitability in Annuity Transactions Model Regulation. If NAIC updates or adopts a new version of the “Insurance Agent (Producer) Disclosure for Annuities” form in Appendix A of the 2020 National Association of Insurance Commissioners’ Suitability in Annuity Transactions Model Regulation after January 1, 2024, the commissioner shall adopt, and producers shall use, a substantially similar version of the new or amended “Insurance Agent (Producer) Disclosure for Annuities” form.

(i) A description of the scope and terms of the relationship with the consumer and the role of the producer in the transaction.

(ii) An affirmative statement on whether the producer is licensed and authorized to sell the following products:

(I) Fixed annuities.

(II) Fixed indexed annuities.

(III) Variable annuities.

(IV) Life insurance.

(V) Other life and annuity products, as specified.

(VI) Mutual funds.

(VII) Stocks and bonds.

(VIII) Certificates of deposit.

(iii) (I) An affirmative statement describing the insurers the producer is authorized, contracted or appointed, or otherwise able to sell insurance products for, using the following descriptions:

(ia) From one insurer.

(ib) From two or more insurers.

(ic) From two or more insurers, although primarily contracted with one insurer.

(II) For purposes of this clause, insurers with common ownership and control shall be counted as one insurer.

(iv) A description of the sources and types of cash compensation and noncash compensation to be received by the producer, including whether the producer is to be compensated for the sale of a recommended annuity by commission as part of premium or other remuneration received from the insurer, intermediary, or other producer or by fee as a result of a contract for advice or consulting services.

(v) A prominent notice of the consumer’s right to request additional information regarding cash compensation to be received by the producer as described in subparagraph (B).

(B) Upon request of the consumer or the consumer’s designated representative, the producer shall disclose both of the following:

(i) A reasonable estimate of the amount of cash compensation to be received by the producer, which may be stated as a range of amounts or percentages.

(ii) Whether the cash compensation is a one-time or multiple occurrence amount, and if a multiple occurrence amount, the frequency and amount of the occurrence, which may be stated as a range of amounts or percentages.

(C) Before or at the time of recommendation or sale of an annuity, the producer shall inform the consumer of various features of the annuity, such as the potential surrender period and surrender charges, potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity, mortality and expense fees, investment advisory fees, any annual fees, potential charges for and features of riders or other options of the annuity, limitations on interest returns, potential changes in nonguaranteed elements of the annuity, insurance and investment components, and market risk.

(3) Conflict of Interest Obligation. A producer shall identify and avoid or reasonably manage and prominently disclose any material conflicts of interest, including material conflicts of interest relating to an ownership interest.

(4) Documentation Obligation. A producer shall, at the time of recommendation or sale, do all of the following:

(A) Provide the consumer and the insurer with a written record of any recommendation and the basis for the recommendation, subject to this article.

(B) Obtain a customer-signed statement documenting both of the following:

(i) The customer’s refusal to provide the consumer profile information, if any.

(ii) The customer’s understanding of the ramifications of not providing their consumer profile information or providing insufficient consumer profile information.

(C) Obtain a customer-signed statement acknowledging that an annuity transaction is not recommended if the customer decides to enter into an annuity transaction that is not based on the producer’s or insurer’s recommendation.

(5) Application of the Best Interest Obligation. Any requirement applicable to a producer under this section shall apply to every producer who has exercised material control or influence in the making of a recommendation and has received direct compensation as a result of the recommendation or sale, regardless of whether the producer has had any direct contact with the consumer. Activities such as providing or delivering marketing or educational materials, product wholesaling or other back office product support, and general supervision of a producer do not, in and of themselves, constitute material control or influence.

(b) Transactions not based on a recommendation.

(1) Except as provided under paragraph (2), a producer shall have no obligation to a consumer under paragraph (1) of subdivision (a) related to any annuity transaction if any of the following are true:

(A) No recommendation is made.

(B) A recommendation was made and was later found to have been prepared based on materially inaccurate information provided by the consumer.

(C) A consumer refuses to provide relevant consumer profile information and the annuity transaction is not recommended.

(D) A consumer decides to enter into an annuity transaction that is not based on a recommendation of the producer.

(2) An insurer’s issuance of an annuity subject to paragraph (1) shall be reasonable under all the circumstances that are actually known, or that after reasonable inquiry should be known, to the insurer or the producer at the time the annuity is issued.

(c) Supervision System.

(1) Except as permitted under subdivision (b), an insurer shall not issue an annuity recommended to a consumer unless there is a reasonable basis to believe the annuity would effectively address the particular consumer’s financial situation, insurance needs, and financial objectives based on the consumer’s consumer profile information.

(2) An insurer shall establish, maintain, and utilize a supervision system that is reasonably designed to achieve the insurer’s and its producers’ compliance with this article, including, but not limited to, the following:

(A) The insurer shall establish, maintain, and utilize reasonable procedures to inform its producers of the requirements of this article and shall incorporate the requirements of this article into relevant producer training manuals.

(B) The insurer shall establish, maintain, and utilize reasonable standards for producer product training, and shall maintain and utilize reasonable procedures to require its producers to comply with the requirements of Section 10509.9205.

(C) The insurer shall provide product-specific training and training materials that explain all material features of its annuity products to its producers.

(D) The insurer shall establish, maintain, and utilize procedures for review of each recommendation before issuance of an annuity that are designed to ensure there is a reasonable basis to determine that the recommended annuity would effectively address the particular consumer’s financial situation, financial needs, insurance needs, and financial objectives. Such review procedures shall apply a screening system for the purpose of identifying selected transactions for additional review and may be accomplished electronically or through other means, including, but not limited to, physical review. An electronic or other system may be designed to require additional review only of those transactions identified for additional review by the selection criteria.

(E) The insurer shall establish, maintain, and utilize reasonable procedures to detect recommendations that are not in compliance with subdivisions (a), (b), (d), and (e). This may include, but is not limited to, confirmation of the consumer’s consumer profile information, systematic customer surveys, producer and consumer interviews, confirmation letters, producer statements or attestations, and programs of internal monitoring. This subparagraph does not prevent an insurer from complying with this subparagraph by applying sampling procedures, or by confirming consumer profile information or other required information under this section after issuance or delivery of the annuity.

(F) The insurer shall establish, maintain, and utilize reasonable procedures to assess, before or upon issuance or delivery of an annuity, whether a producer has provided to the consumer the information required to be provided under this section.

(G) The insurer shall establish, maintain, and utilize reasonable procedures to identify and address suspicious consumer refusals to provide complete consumer profile information.

(H) The insurer shall establish, maintain, and utilize reasonable procedures to identify and eliminate any sales contests, sales quotas, bonuses, and noncash compensation that are based on the sales of specific annuities within a limited period of time. The requirements of this subparagraph are not intended to prohibit the receipt of health insurance, office rent, office support, retirement benefits, or other employee benefits by employees, as long as those benefits are not based upon the volume of sales of a specific annuity within a limited period of time.

(I) The insurer shall annually provide a written report to its senior management, including to the senior manager responsible for audit functions, that details a review, with appropriate testing, reasonably designed to determine the effectiveness of the supervision system, the exceptions found, and corrective action taken or recommended, if any.

(3) (A) This subdivision does not restrict an insurer from contracting for performance of a function, including maintenance of procedures, required under this subdivision. An insurer is responsible for taking appropriate corrective action, and may be subject to sanctions and penalties pursuant to Section 10509.9206 regardless of whether or not the insurer contracts for performance of a function and regardless of the insurer’s compliance with subparagraph (B). An insurer is responsible for the compliance of its producer with the provisions of this article regardless of whether the insurer contracts for performance of a function required under this subdivision and regardless of the insurer’s compliance with subparagraph (B).

(B) An insurer’s supervision system under this subdivision shall include reasonable supervision of contractual performance under this subdivision. This includes, but is not limited to, both of the following:

(i) Reasonable monitoring and, as appropriate, conducting audits to assure that the contracted function is properly performed.

(ii) Annually obtaining a certification from a senior manager who has responsibility for the contracted function that the manager has a reasonable basis to represent, and does represent, that the function is properly performed.

(4) An insurer is not required to include in its system of supervision either of the following:

(A) A producer’s recommendations to consumers of products other than the annuities offered by the insurer.

(B) Consideration of or comparison to options available to the producer or compensation relating to those options other than annuities or other products offered by the insurer.

(d) Prohibited Practices. A producer or insurer shall not dissuade, or attempt to dissuade, a consumer from any of the following:

(1) Truthfully responding to an insurer’s request for confirmation of the consumer profile information.

(2) Filing a complaint.

(3) Cooperating with the investigation of a complaint.

(e) Safe Harbor.

(1) Recommendations and sales of annuities made in compliance with comparable standards shall satisfy the requirements of this section. This subdivision applies to all recommendations and sales of annuities made by financial professionals in compliance with business rules, controls, and procedures that satisfy a comparable standard even if such a standard would not otherwise apply to the product or recommendation at issue. However, this subdivision does not limit the insurance commissioner’s ability to enforce, including conducting investigations related to, the provisions of this article, regardless of whether the financial professional is operating under a comparable standard or in accordance with subdivisions (a) to (d), inclusive, of this section.

(2) Paragraph (1) does not limit the insurer’s obligation to comply with paragraph (1) of subdivision (c), although the insurer may base its analysis on information received from either the financial professional or the entity supervising the financial professional.

(3) For paragraph (1) to apply, an insurer shall do both of the following:

(A) Monitor the relevant conduct of the financial professional seeking to rely on paragraph (1) or the entity responsible for supervising the financial professional, such as the financial professional’s broker-dealer or an investment adviser registered under federal or California securities laws using information collected in the normal course of an insurer’s business.

(B) Provide to the entity responsible for supervising the financial professional seeking to rely on paragraph (1), such as the financial professional’s broker-dealer or investment adviser registered under federal or California securities laws, information and reports that are reasonably appropriate to assist the entity to maintain its supervision system.

(4) For purposes of this subdivision, “financial professional” means a producer that is regulated and acting as any of the following:

(A) A broker-dealer registered under federal or California securities laws or a registered representative of a broker-dealer.

(B) An investment adviser registered under federal or California laws or an investment adviser representative associated with the federally or California-registered investment adviser.

(C) A plan fiduciary under Section 3(21) of the federal Employee Retirement Income Security Act (ERISA) of 1974 (29 U.S.C. Sec. 1001 et seq.) or fiduciary under Section 4975(e)(3) of the Internal Revenue Code (IRC) or any amendments or successor statutes thereto.

(5) For purposes of this subdivision, “comparable standards” means:

(A) With respect to broker-dealers and registered representatives of broker-dealers, applicable rules of the United States Securities and Exchange Commission and the Financial Industry Regulatory Authority pertaining to best interest obligations and supervision of annuity recommendations and sales, including, but not limited to, Regulation Best Interest and any amendments or successor regulations thereto.

(B) With respect to investment advisers registered under federal or California securities laws or investment adviser representatives, the fiduciary duties and all other requirements imposed on such investment advisers or investment adviser representatives by contract or under the Investment Advisers Act of 1940 (15 U.S.C. Sec. 80b-1 et seq.) or applicable state securities law, including, but not limited to, the Form ADV and interpretations.

(C) With respect to plan fiduciaries or fiduciaries, the duties, obligations, prohibitions, and all other requirements attendant to such status under ERISA or the IRC, and any amendments or successor statutes thereto.