Chapter 6 - California 8 Hour Annuity Training Supplement
Contract Provisions
1) Issue Ages 2) Premium Payments 3) Indexed Annuity Guaranteed Minimum Interest Rates
Health Benefits
A maximum of $200,000 of the contractual obligations that the health insurance company would owe were it not insolvent. The maximum may increase or decrease annually based on changes in the health care cost component of the consumer price index.
Administrative Penalties
Administrative penalties correspond to those already stated.
Annuities and Medi-Cal Assistance Eligibility
For an individual to be eligible for medical assistance for home and facility care, during the initial application, and later during any redetermination of eligibility, he/she (and his/her spouse) must disclose any interest they have in any annuity. It makes no difference if the annuity is irrevocable, listed as a resource, or income. At the time of disclosure, the department must inform the individual (and the spouse) that as a result of providing medical assistance for home and facility care, the state will by law become a remainder beneficiary on certain types of annuities. This only pertains to annuities where, after death, there will be a payment left for a beneficiary. The applicant and spouse have an interest in an annuity if they (in whole or in part) are either owners of an annuity or annuitants on an annuity. If the individual has paid for an annuity for someone else and they are neither an owner nor annuitant, the purchase is subject to existing regulation involving look backs at transfers of money prior to any application for benefits. Someone who is only a beneficiary on someone else's annuity does not have an interest in that annuity now. Their eligibility would have a redetermination in the future should they actually receive money as a beneficiary after a death. This pertains only to annuities, purchased after February 8, 2006, that have had no transactions since that date.A "transaction" includes, but is not limited to, any course of action by the individual or spouse that changes the course of payments coming from the annuity.It does not matter if the payments are from principal, from gain, or are in the form of income payments. An annuity event is not a transaction after February 8, 2006 if it required no action or decision by the individual. Examples of non-transactional events would be:Routine changes and changes based on terms of the annuity that existed prior to February 8, 2006.Automatic events.Changes beyond the control of the individual or the individual's spouse. When the state has properly proved its right to be a remainder beneficiary of an annuity, any provision put in an annuity contract by a life insurance company that restricts the right of the state to be a remainder beneficiary of that annuity contract is void. If an individual (or his/her spouse) prohibits the state from becoming a remainder beneficiary, he/she must notify the department in writing of that position. When this is done, the eligibility requirements treat the purchase of the annuity as "the transfer of an asset for less than market value". At the time the state becomes aware of an annuity in which it has acquired a remainder beneficiary interest, the department must notify the life insurance company that issued the annuity of the state's acquisition of the remainder interest. The life insurance company must immediately release to the department all information pertaining to any withdrawal of income or principal from the annuity. The date the individual disclosed the annuity during the eligibility process will be the date the issuer uses to report these numbers. Thereafter, the life insurance company must immediately notify the department if changes are made to the annuity: Amount being withdrawn changes Beneficiary changes The money the state receives from an annuity will be deposited into the General Fund. In situations where an annuity is ruled to be a portion of or the entire community spouse resource allowance, the state will only become a remainder beneficiary for the portion of the annuity not designated to be a community spouse resource allowance. The state will not be made a remainder beneficiary for any annuity that meets at least one of the following three requirements: The annuity was bought by a community spouse with resources attributed to that community spouse. This purchase had to occur during the continuous period while the individual was receiving medical assistance for home and facility care and after the month in which the individual was determined to be eligible for those benefits. The annuity is contained in a retirement plan qualified under Title 26 of the United States Code. Whether established by an employer or the individual, eligible plans that qualify for this include (but are not limited to) traditional IRAs, Roth IRAs, and Keogh plans (HR-10s). The annuity has all four of the following characteristics:It is irrevocableIt is not assignableIt is actuarially soundIt provides an unchanging payment throughout the entire payout term. In addition, these payments may not provide the option for any deferral and there also may not exist any option for any form of larger balloon payment. It is the responsibility of the individual or the community spouse (or both) to prove that at least one of the three factors exists, in order to limit the state's right to become a remainder beneficiary. The fact that Medi-Cal has provided health care for an individual will not impose any restriction or limitation on that individual's rights to exchange, sell, or change the form of property holdings. The cost of care provided does not result in any encumbrance on the holdings. Nonetheless, should an asset (including either resources or income) be gifted or transferred for less than fair market value, it could result in a loss of benefits. This loss could take different forms—ranging from full ineligibility to only a partial reduction in benefits for a specified number of months. Any item, such as a loan, note, life estate, or an annuity, that is held and distributed in any manner that does not conform to the requirements of the federal Social Security Act (and related regulations) will be treated as a transferred asset. This could cause ineligibility of benefits.
Deceptive or Misleading
Insurers, agents, brokers, solicitors, and any other person or entity is forbidden to solicit California seniors for the purchase of disability insurance, life insurance, or annuities through the use of a true or fictitious name which is deceptive or misleading with regard to the status, character, or proprietary or representative capacity of the entity or person, or to the true purpose of the advertisement. Advertisements include: - Envelopes - Stationery - Business cards - Other materials designed to describe and encourage the purchase of a policy or certificate of disability insurance, life insurance, or an annuity.
Violation of Provisions in Sections 780 or 781 of the CIC
Section 782 of the California Insurance Code establishes penalties for violations of Sections 780 and 781.
Direct Mailers
The organizational licensee numbers should be used in advertisements from transactors, or agent and broker licensees, who are classified as solicitors, working as exclusive employees of motor clubs.
Penalties
Violating this law is subject to a fine $200 for the first offense, $500 for the second offense, and $1,000 for the third and subsequent offenses. Separate penalties are not imposed on each piece of printed material that fails to conform (such as a box of 1,000 business cards). If the commissioner finds a licensee failed to comply due to reasonable cause or circumstance beyond his/her control, ordinary care was exercised and there was no willful neglect, the licensee may be relieved of the penalty.
Life & Annuity Benefits
80% of what the life insurance company would owe under a life policy or annuity contract up to: - $100,000 in cash surrender values - $100,000 in present value of annuities - $250,000 in life insurance death benefits - A maximum of $250,000 for any one insured life no matter how many policies and contracts there were with the same company, even if the policies provided different types of coverage.
Recordkeeping for Tax-Qualified Annuities, IRAs, Roth IRAs, 403(b)s, Tax-Sheltered Annuities, and Qualified Retirement Plans
Accurate recordkeeping is also required for tax-qualified annuities too, but there are some important differences: - Client contact records (example: name and address, telephone number, date of birth and social security number, etc.). - Accurate financial records of all premiums by both amount and date received, cash value accumulation for each client account over time since the original premium or any subsequent premium was received, and surrender charge calculations from the original policy date and each premium received date. - Insurance companies have to be able to differentiate between non-qualified accounts and tax-qualified accounts, including 1099s for all tax-qualified retirement account distributions. - Beneficiary designations.
Premium Payments
Advanced premium collections are limited as follows: An incorporated life insurer issuing life insurance policies on the reserve basis may collect premiums in advance. Such insurers may also accept moneys for the payment of future premiums related to any policies issued by it. No such insurer may accept such moneys in an amount to exceed: 1. The sum of future unpaid premiums on any such policy or 2. The sum of 10 such future unpaid annual premiums on any such policy if such sum is less than the sum of future unpaid premiums on any such policy. This does not limit the right of such insurers to accept funds under an agreement which provides for an accumulation of such funds for the purpose of purchasing annuities at future dates.
Home Equity
An individual is not eligible for Medi-Cal coverage for home and facility care if his or her equity interest in their principal residence exceeds $750,000. Every year this number is increased based on the percentage increase for the urban consumer price index, a measurement that records inflation for all items in United States cities. The formula for determining equity interest starts with the lesser of one of these two values: 1. The assessed value as determined by the most recent tax assessment. 2. The appraised value as determined by a qualified real estate appraiser retained by the applicant or beneficiary.
Importance of Reviewing Sample Contracts
Annuities are contracts between the insurance company and the annuity owner. The contract is written as a precise statement of what the insurance company will provide the owner and beneficiary. Agents should read the language and understand the terms of the contract to explain it to the client. Sample contracts are available so agents can read the terms and conditions and become conversant with them in advance of client meetings.
Lead Generating
Any advertisement designed to produce leads based on a response from a potential insured which is directed towards persons age 65 or older is required by the California Insurance Code to prominently disclose that an agent may contact the applicant (if that is the fact.) In addition, an agent who makes contact with a person as a result of acquiring that person's name from a lead generating device must also disclose that fact in the initial contact with the person.
Bait and Switch
Bait and switch techniques involve unscrupulous sellers promising one thing and delivering something else, usually at a higher price or on a basis more advantageous to the seller. In California, consumers have the right to a 10 day free look period for all insurance contracts. Seniors age 60 and older have a 30 day free look period for life insurance, annuities, and long-term care insurance. The consumer can undo an insurance or annuity purchase and receive a full refund of any premium paid by acting within the free look period.
Required Agent Product Training
Before a California insurance agent can solicit the sale of an annuity product, he or she must first receive product specific training from the insurance carrier and become compliant with the one time, 8 hour training requirement. Agents must also complete an approved 4-hour annuity continuing education course prior to each license renewal. As in the NAIC Model Regulation, the insurance carrier is ultimately responsible for verifying that appointed agents have completed the annuity training required under California Insurance Code before allowing the agent to sell an annuity product for that insurer. Currently, the CDI's website offers agents, brokers and carriers a reference source to verify hours have been completed at www.insurance.ca.gov.
Duties, Rights, and Obligations of California Agents and Insurers
California Insurance Code regulates the replacement of existing life insurance and annuities by setting minimum standards of conduct that agents and insurers are required to observe when replacement transactions occur. This includes making sure the consumer receives enough information to make a decision in his or her own best interest. By monitoring and controlling replacement transactions, the department hopes to reduce the incidents of misrepresentation and incomplete disclosures. Penalties have been enacted for noncompliance.
Insurers
First violation fine is $10,000 Knowingly or subsequent violationsMinimum penalty of $30,000Maximum of $300,000 for each violation Repeated violations by same insurer could indicate a company-wide bad businesses practice. The commissioner can rescind any contract marketed or issued in violation.
Insurers
First violation fine is $10,000. Frequent or knowing violations result in penalties from a minimum of $30,000 to a maximum of $300,000. After a proper hearing, the commissioner may suspend or revoke any license as a result of these violations.
Agents
First violation is $1,000 Knowing or any subsequent violations will result in:Minimum penalty of $5,000Maximum of $50,000 per violation The license can be suspended until the outcome of the related hearing, per the discretion of the Commissioner.
Other California Specific Regulations and Codes
In certain areas of annuity regulation, California statutes and laws specifically highlight concepts that may not be addressed by the NAIC Model Regulations as adopted by other states regarding the suitability of annuity sales. With that in mind, the following areas are listed here for California agent consideration.
Administrative Penalties, Amounts, Rescission of Contracts
Penalties, amounts, and the rescission of contracts for those selling insurance and the insurance companies themselves are as follows:
Pre and Post Retirement Planning
Pre-retirement planning traditionally takes place years before actual retirement. A 25 year old may begin setting aside some money for retirement from the first paycheck received, focusing on the goal of accumulating money for the future. Pre-retirement planning at any age can also include: - Actively saving money in bank accounts or establishing a retirement account such as a traditional or Roth IRA. - Contributing at work to a 401(k), 403(b), SIMPLE IRA, SEP, or other defined benefit plan. - Budgeting and managing family finances as life changes occur: marriage, children, a mortgage, saving for college education. - Managing tax-qualified retirement plan assets if employment changes; workers rarely stay with one job or one employer during a working lifetime.
Insurer Responsibilities
The insurance carrier must send written communication to each existing life insurer advising the company of the proposed replacement including all policy details and identification information regarding the proposed life insurance or annuity, within 3 working days of the date the application is received in the replacing insurer's home or regional office, or the date the proposed policy or contract is issued, whichever is sooner. The existing life insurer/agent that attempts to conserve the policy or contract being replaced, must furnish the policyowner with a policy summary for the existing life insurance or ledger statement containing policy data on the existing policy or annuity, within 20 days from the date the written communication. The replacing insurer may request the existing insurer furnish a copy of the summaries or ledger statement within 5 working days of the receipt of the request.
Full Contract Disclosure
The intent of this provision is to accurately inform the consumer concerning all policy provisions. "Any contract which does not provide cash surrender benefits or does not provide death benefits at least equal to the minimum nonforfeiture amount prior to the commencement of any annuity payments shall include a statement in a prominent place in the contract that such benefits are not provided."
Look-Back Period
The look-back period was lengthened by the Deficit Reduction Act to 60 months, making the transfer game more difficult to pull off. The look-back date is established by the department at the time of the initial application for Medi-Cal benefits. Assets transferred by applicants or pertinent beneficiaries before the then established look-back date, are not considered in any way as part of the determination of benefit eligibility. The department works under the assumption that assets transferred prior to the beginning of the look-back date were not transferred for the purpose of beating the system making the program pay for benefits that the individuals had adequate resources to pay for by themselves.
Legal, Financial or Tax Advice Disclaimer Form
This form is required to be submitted with an annuity application if such sale required of the client the liquidation of the assets listed.
In-Home Solicitations for Persons 65 Years and Older
This section of California Insurance Code applies to the sale, offering for sale, or generation of leads for the sale of life insurance, including annuities, to senior insured or prospective insureds by any person. To meet in a senior's home, 24-hour advance written notice is required: - If the senior has an existing insurance relationship with an agent and requests a meeting with the agent in the senior's home the same day, a notice must be delivered to the senior prior to the meeting. - The notice must be in substantially the following form with the appropriate information inserted, in 14-point type: The first thing an agent should do after greeting the senior, is verbally communicate that the purpose of the visit is to talk about insurance (or to gather information for a follow-up visit to sell insurance), and state all of the following information: The name and titles of all persons arriving at the senior's home. The name of the insurer represented by the person, if known. Each person attending a meeting with a senior must provide the senior with a business card or other written identification stating the person's name, business address, telephone number, and any insurance license number. The persons attending a meeting with a senior must end all discussions and leave the home of the senior immediately after being asked to leave by the senior. A person may not solicit a sale or order for the sale of an annuity or life insurance policy at the residence of a senior, in person or by telephone, by using any plan, scheme, or ruse that misrepresents the true status or mission of the contact.
Undue Hardship Exception
A final ruling must be made by the state on the undue hardship appeal prior to the beginning of ineligibility for medical assistance for home or facility care. Any of the following may be granted a fair hearing on the issue of undue hardship: - Applicant - Representative - The facility where the individual requesting or already receiving medical assistance for home and facility care is residing, as long as the facility has proper consent from the applicant or representative. - When an individual is subject to a period of ineligibility and has an undue hardship appeal pending, the program will grant medical assistance for home and facility care for up to thirty bed-hold days.
Cannot Misrepresent Asset Treatment under Medi-Cal when Selling Financial Products to Seniors
A life agent who offers for sale or sells a financial product to a senior on the basis of the product's treatment under Medi-Cal may not negligently misrepresent the treatment of any asset under Medi-Cal statutes, rules, and regulations as it pertains to eligibility for any public assistance program. If a life agent offers for sale or sells any financial product on the basis of its treatment under the Medi-Cal program, the agent must provide the following written disclosure to the senior or his/her agent. This statement must be: - At least 12-point type - Clearly separate from any other document or writing - Signed by the prospective purchaser and that person's spouse, or legal representative A sample of this form with its exact wording can be read in Attachment II at the end of this course.
Advertising to Seniors Age 65 & Over
Advertisements cannot employ words, letters, initials, symbols, or other devices similar to those used by governmental agencies, nonprofit or charitable institutions, senior organizations, or other insurers that could be construed as misleading the public. Examples of misleading materials, include, but are not limited to, those which imply any of the following: - The advertised coverages are somehow provided by or are endorsed by any governmental agencies, nonprofit or charitable institution or senior organizations. - The advertiser is the same as, is connected with or is endorsed by governmental agencies, nonprofit or charitable institutions or senior organizations. Advertisements cannot use the name of a state or political subdivision in a policy name or description. Advertisements cannot use any name, service mark, slogan, symbol, address, or any other device that implies that the insurer or the policy or certificate advertised, or that any agency who may call upon the consumer in response to the advertisement, is connected with a governmental agency that might confuse the prospective purchase. Advertisements cannot imply that the reader may lose a right, or privilege, or benefits under federal, state, or local law if he or she fails to respond to the advertisement. An insurer, broker, agent, or other entity cannot use an address so as to mislead or hide the true identity, location, or licensing status of the insurer, broker, agent, or other entity.
Pre and Post Retirement Planning
After retirement, planning involves fine-tuning both income and expenses. Working together, the agent and consumer should regularly re-evaluate a retirement portfolio and plan to make corrections or adjustments as necessary. Just because the working and accumulating years are in the past doesn't mean that the retiree is no longer subject to the influences of the financial markets. Items to review include: - Investments and stock market performance - Bank interest rates and bond market performance - Governmental policies involving Social Security and cost of living adjustments - Taxation and changes in tax rates - Other economic factors
Duty of Honesty, Good Faith and Fair Dealing; Breach of Duty
All insurers, brokers, agents, and others engaged in the transaction of insurance owe a prospective insured who is 65 years of age or older, a duty of honesty, good faith, and fair dealing. This is in addition to any other duty, whether express or implied, that may exist. Conduct of an insurer, broker, or agent, or other person engaged in the transaction of insurance, during the offer and sale of a policy or certificate previous to the purchase is relevant to any action alleging a breach of the duty of good faith and fair dealing.
Annuities & Medi-Cal Eligibility
An annuity cannot be sold to a senior if his/her purpose in purchasing the annuity is to affect Medi-Cal eligibility and if either of the following conditions is true: - The senior's assets are equal to or less than the Community Spouse Resource Allowance (CSRA). - The senior would otherwise qualify for Medi-Cal. If a fixed annuity, issued to a senior, affects Medi-Cal eligibility under either of these two conditions, the issuer must rescind the contract and refund to the purchaser all premiums, fees, any interest earned under the terms of the contract, and costs paid for the annuity. If the senior's purpose in purchasing the annuity is to affect Medi-Cal eligibility, and after the purchase of the annuity, the senior or the senior's spouse would not qualify for Medi-Cal, then too, an annuity cannot be sold.
Cause for Suspension of Insurance License
An insurance license can be suspended or revoked if the Commissioner determines the agent induced a client to: - Co-sign or make a loan, investment or a gift. - Make the agent or related person or domestic partner a beneficiary or a trustee of a living trust. Exception: If an agent is also a licensed attorney, he/she may be a trustee of a trust, but may not be a seller of insurance to the trustor of the trust. - Purchase an insurance product by having or using a power of attorney which resulted in a commission for the agent. - Provide a benefit to other people who are related to the agent by birth, marriage or adoption, or who is/are a friend or business acquaintance, or a registered domestic partner of the agent. Exception: An agent may provide insurance products for clients who are related to the licensee by birth, marriage or adoption, or a registered domestic partner of the agent.
Policy Illustration Disclosures
Both insurers and agents who sell life insurance policies or annuity contracts MUST disclose illustrations of nonguaranteed values in writing to senior clients. The following disclosure is required to be either in bold or underlined CAPITALIZED print, or in the form of a contrasting color sticker, bright highlighter pen, or in any manner that makes it more prominent than the surrounding material, with at least one-half inch space on all four sides. This is an illustration only An illustration is not intended to predict actual performance. Interest rates, dividends, or values that are set forth in the illustration are not guaranteed, except for those items clearly labeled as guaranteed. Preprinted policy illustrations must contain this notice in 12-point bold print with the same prominence. All preprinted illustrations containing nonguaranteed values are required to show the columns of guaranteed values in bold print. All other columns used in the illustration must be in standard print. "Values" here include: cash values, surrender values, and death benefits.
Issue Ages
California Insurance Code deals with life or disability insurance or annuity contracts issued to a minor (less than age 16), stipulating that as long as the written consent of the parent or guardian is given, the minor is not to be considered "incompetent" by reason of age to participate in whatever needs to be done with the contract. "when one of these contracts is issued for benefit of the minor...or for the benefit of the father, mother, husband, wife, child, brother, or sister, of such minor, or issued to such minor, subject to written consent of a parent or guardian, upon the life of any person in whom such minor has an insurable interest for the benefit of himself or such minor's father, mother, husband, wife, child, brother or sister, such minor shall not, by reason only of such minority, be deemed incompetent to contract for such insurance or annuity, or for the surrender thereof, or to exercise all contractual rights there under, or, subject to approval of a parent or guardian, to give a valid discharge for any benefit accruing or for any money payable there under; provided, that all such contracts made by a minor under the age of 16 years, as determined by the nearest birthday, shall have the written consent of a parent or guardian, and that the exercise of all contractual rights under such contracts, or the surrender thereof, or the giving of a valid discharge for any benefit accruing or money payable there under, in the case of a minor under the age of 16 years, as determined by the nearest birthday, shall have the written consent of a parent or guardian."
Appropriate Advertising
California insurance agents and brokers are required to prominently display their insurance license number on business cards, written price quotes, and print advertisements distributed in this state. The type must be the same size as any indicated telephone number, address, or fax number. In addition, the word "Insurance" must also be included (same font size as address, etc.)
Selling to the Senior Market
Caveat emptor or "let the buyer beware," is a philosophy often assumed in business situations. It places all the responsibility on the shoulders of the buyer to fully understand the products and services being purchased. It assumes the buyer possesses adequate information and knowledge to evaluate sales and marketing claims and to determine the value of a product or service. While this philosophy might apply to buying a used car from an online listing, it does not apply to the financial services industry. Federal consumer protection laws and state regulations govern these transactions and that is especially true in the senior market. The NAIC's Model 275 Regulation outlines the collective opinion of insurance commissioners from across the country. Financial products and annuity contracts are complicated and difficult to fully understand. Reasons include: - Technical terminology that is unfamiliar to the general public - Unclearly described product - Confusing contracts - Misleading sales and marketing literature - Inadequately trained and/or supervised agents - Sales processes that may favor the seller over the buyer - Seller compensation plans may govern product selection - to the detriment of the buyer The issue of buyer competence is not only an ethical issue for licensed California agents; it is a legal concern as well. The California Civil Code §38-39 states: 38. A person entirely without understanding has no power to make a contract of any kind, but the person is liable for the reasonable value of things furnished to the person necessary for the support of the person or the person's family. 39. (a) A conveyance or other contract of a person of unsound mind, but not entirely without understanding, made before the incapacity of the person has been judicially determined, is subject to rescission... (b) A rebuttable presumption affecting the burden of proof that a person is of unsound mind shall exist for purposes of this section if the person is substantially unable to manage his or her own financial resources or resist fraud or undue influence. Substantial inability may not be proved solely by isolated incidents of negligence or improvidence.
Recordkeeping
Client files may be data stored in a computer client data base program for easy retrieval or a manila folder with handwritten notes, copies of documents, etc. and may include fact-finding materials, client comments and letters, copies of applications (example: life and annuity), and related correspondence. Client records may also include meeting agendas and contemporaneous handwritten meeting notes. These can be invaluable to help remember conversations and commitments. Most life insurance companies have compliance departments that reserve the right to inspect agent records upon request. Keeping accurate client records allows an agent to justify actions taken and recommendations made, in case of client questions or compliance department audits.
Variable Life & Variable Annuities Are Excluded
Coverage is not provided for a variable policy or any portion of it that is not guaranteed by the insurer or for which the consumer assumed the risk, such as a variable contract sold by prospectus.
Classes and Seminar Wording Requirements
In addition, no advertisement for an event where insurance products will be offered for sale is allowed to use the terms "seminar," "class," "informational meeting," or substantially equivalent terms to characterize the purpose of the public gathering or event unless it adds the words "and insurance sales presentation" immediately following those terms in the same type size and font as those terms.
Agent Responsibilities
Each agent who submits an application for a life insurance or annuity replacement to the insurer must include both of the following: - A signed copy of the Notice Regarding Replacement. - A listing of all existing life insurance or annuity policies being replaced, with proper and complete identification of insurer name(s), insured name(s), and contract number(s). The agent must leave the original or a copy of the notice with the applicant and originals of any other printed communications used in the presentation.
Regarding Replacement
Earlier, replacement was defined to the national standards of the NAIC Model regulation. California code further defines replacement to include contracts pledged as collateral or subjected to borrowing, whether in a single loan or under a schedule of borrowing over a period of time for amounts in the aggregate exceeding 25 percent of the loan value set forth in the policy. Unnecessary Replacement is also defined in California Insurance Code as any transaction where one annuity is sold to replace another resulting in the insured paying a surrender charge on the annuity being replaced, or does not gain a substantial financial benefit over the life of the new policy. - An agent or insurer is in violation of this regulation if a recommendation is made to replace or retain an existing policy using materially inaccurate information (misrepresentation). - Agents must be especially mindful of the details when conducting business with consumers age 65 or older.
Regarding Policy Cancellation and Refund
For purposes of these requirements, a "senior" refers to an individual age 60 years or older on the date of purchase of the policy.
Indexed Annuity Guaranteed Minimum Interest Rates
If an annuity contract "provides substantive participation in an equity index benefit (indexed annuity) the guaranteed minimum interest rate may be lower than the minimum rate on fixed annuities, subject to approval of the State Insurance Commissioner."
Medi-Cal
In 1965 the federal government created both the Medicare and the Medicaid programs. The main purpose of the Medicaid program is to assist poor Americans of all ages with medical expenses, as long as minimum program requirements are met. Eligibility is based on economic qualifications. Medicaid involves both the federal government and each state government working together in order to supply medical coverage for the portion of each state's own population that has the least financial resources. The California Medicaid program is called Medi-Cal. Medi-Cal is administered by the California Department of Health Care services and supplies health care services to qualified low income California recipients. Among the possible benefits Medi-Cal provides are nursing home facility services as well as community and home based services.
History & Purpose
In 1991, the California legislature enacted the California Life and Health Insurance Guarantee Association (CLHIGA). This association is composed of all insurers licensed to sell life insurance, health insurance, and annuities in the State of California. If a member insurance company is found to be insolvent and is ordered by a court to be liquidated, the Guarantee Association Act provides that the guarantee association provides limited protection to California residents who hold life, health, and/or annuity contracts with the insolvent insurer. The association serves as a safety net of last resort.
Insurer's Annual Report to Annuity Customers
Insurance companies must keep accurate records or the following information, in order to provide an annual report to annuity clients, including seniors, consisting of current cash accumulation and current cash surrender values. Premiums received Partial withdrawals Surrenders processed Cash value of all annuities
Recordkeeping for Non-Qualified Annuities
Insurance companies must keep accurate records: - Client contract records (example: name and address, telephone number, date of birth and social security number, etc.). - Accurate financial records of all premiums by both amount and date received, cash value accumulation for each client account over time since the original premium or any subsequent premium was received, surrender charge calculations from the original policy date and each premium received date, and especially the cost basis of the annuity contract which is important for the tax advantage of a non-qualified annuity. - Beneficiary designations.
Restrictions on Use
Insurance companies or their agents are required to give their customer notice that the guarantee association exists and summarize the limits on coverage. Insurance companies and their agents are prohibited by law from using the existence of the guarantee association to induce consumers to purchase any kind of insurance policy.
Free Look (Life Insurance, Fixed or Indexed Annuity)
Insurers are required to attach the following Free-Look/Cancellation notice to every life insurance or annuity contract sold to a senior (age 65 or older) in no less than 10 point uppercase font: Important You Have Purchased a Life Insurance Policy or Annuity Contract Carefully Review it for Limitations This policy may be returned within 30 days from the date you received it for a full refund by returning it to the insurance company or agent who sold you this policy. After 30 days, cancellation may result in a substantial penalty, known as a Surrender Charge. The phrase, "after 30 days, cancellation may result in a substantial penalty, known as a surrender charge" may be deleted if the policy does not contain those charges or penalties.
Pre-Approval Required
Insurers are required to pre-approve all advertisements used by agents, producers, brokers, solicitors, or other persons for a policy.
Group Reduced Rates
Insurers, agents, brokers, or other entities cannot solicit a particular class using advertisements that state or imply that class of individuals is entitled to reduced rates on a group or other basis when, in fact, the policy or certificate being advertised is sold on an individual basis at regular rates.
Unauthorized Law-drafting, Delivering, & Interpreting Legal Documents
It is illegal to practice law in California unless an active member of the State Bar. Violation of this law is a misdemeanor and punishable by up to one year in a county jail or by a fine of up to one thousand dollars ($1,000), or by both that fine and imprisonment. Subsequent convictions can result in a jail sentence for not less than 90 days, except in an unusual case where the interests of justice would be better served by imposing a lesser sentence or a fine.
Medi-Cal Eligibility
Medi-Cal benefits are provided to California residents who meet the eligibility requirements for those benefits. Medi-Cal coverage is secondary to any other source of coverage the individual receiving services is entitled to. These other primary benefits may come from government sources, such as Medicare or the Veterans Administration, or from private sources like group or individual insurance. It is always the responsibility of the medical service provider to seek reimbursement from any possible primary coverage before billing Medi-Cal.
Agents
Minimum first violation fine is $1,000. Penalties for subsequent violations or for a knowing violation range from a minimum of $5,000 to a maximum of $50,000.
The Relationship of Agents and Attorneys
No one in California can practice law unless he or she is an active member of the State Bar Association. Agents may not share commission or other compensation with attorneys. "An agent, broker, or solicitor who is not an active member of the State Bar of California may not share a commission or other compensation with an active member of the State Bar of California. For purposes of this section, 'commission or other compensation' means pecuniary or nonpecuniary compensation of any kind relating to the sale or renewal of an insurance policy or certificate or an annuity, including, but not limited to, a bonus, gift, prize, award, or finder's fee."
The Transfer Game and Medi-Cal
Not being able to show a satisfactory reason for transfer can lead to a loss of Medi-Cal benefits. The following is a list of transfer situations that will not affect Medi-Cal eligibility: Assets that would have been considered exempt for purposes of establishing eligibility (according to state or federal laws) at the time of transfer. Property with a net market that, at the time the property is transferred, if included in the property reserve, would not result in ineligibility. Assets for which adequate consideration is received. Property upon which foreclosure or repossession was imminent at the time of transfer. There must be no evidence of collusion. Assets transferred in return for an enforceable contract for life care that does not include complete medical care. Assets transferred without adequate consideration when the applicant or beneficiary provides acceptable evidence that the purpose of the transaction was not to beat the system and establish eligibility for benefits.
Pretext Interviews
Pre-text interviews are a variation on bait & switch and involve both deception and misrepresentation and are prohibited by Insurance Code. California defines a "pretext interview" as an interview whereby a person attempts to obtain information about a natural person by doing one or more of the following: Pretends to be someone he/she is not Pretends to represent a person he/she is not in fact representing Misrepresents the true purpose of the interview Refuses to identify him/herself upon request
Undue Hardship Exception
SB 483 protects the rights of the people of California if a government ruling results in a loss of benefits for home or facility care. Before the penalty begins, such as a period during which home and facility medical assistance are denied, individuals have the right to prove the denial causes an undue hardship. The State must inform applicants of the undue hardship exception. Here are six examples that the program considers to be undue hardships: 1. The individual had applied and was approved eligible for medical assistance before pertinent regulation existed. 2. The individual's life or health would be endangered by the deprivation of medical assistance for home and facility care. 3. An individual would be evicted from a nursing home due to the denial of medical assistance for home and facility care. 4. An individual is otherwise eligible for the Medi-Cal program and is unable to obtain home and facility care without Medi-Cal. 5. An individual would be forced to leave their home and their community and be admitted to a hospital or long term care facility as a result of medical assistance for home and facility care being denied. Note that this is a good common sense win-win for both parties. Keeping an individual out of a higher cost institution that provides more services than the individual needs saves money for the program and usually results in a happier individual. 6. Denial of Medi-Cal would result in an individual being deprived of any of the necessities of life such as clothing, food, and shelter.
Misrepresentation Defined
Section 780 covers misrepresentation. A representation is a factual statement. Therefore, a misrepresentation is an incorrect statement or a lie. The foundation of all insurance contracts is that both parties (the agent and the consumer) conduct all transactions honestly and in good faith. Although either party could be guilty of a misrepresentation, this Section focuses on misrepresentation by the agent. This law applies both to insurance companies (and their officers) and all licensed insurance salespeople (whether they are agents, brokers, or solicitors). It covers misrepresentation any of these parties know about or SHOULD know about. The misrepresentation of policy terms, benefits, and dividends are each specifically listed.
Misrepresentation is Illegal
Section 781 details further that, in the simplest terms, misrepresentation is an illegal method for an unethical party to land a sale. The seller benefits and the buyer may actually be injured by a decision based on false information. Misrepresentation may or may not involve replacement. A replacement occurs when a new sale would not be made unless the customer lapses, forfeits, alters, or surrenders an existing policy. Misrepresentation most often takes the form of lies about the competition—incorrect information about the company or its policies. This section covers the practice of twisting. This term originated in the life insurance industry generations ago describing the situation where an unethical sales person "twists" the true facts to induce an innocent victim to buy a policy from them. This misrepresentation (the twisting) usually involves making the new policy appear better than it is, making the existing policy to be replaced appear to be worse than it is, or both. Violations of Sections 780 and 781 are punishable by: - A fine up to $25,000 and/or imprisonment in a county jail up to one year. - If the victim's loss exceeds $10,000 the fine can be up to three times the amount of loss. - Satisfactory restitution will be made to the victim before sentencing.
State Becomes Remainder Beneficiary of any Annuity (SB 483)
The State Bill 483, introduced by Senator Kuehl, requires that any applicant for Medi-Cal benefits for home and facility care meet the specific eligibility requirement provisions before receiving the requested medical assistance. Reference to this bill is included in this course because one of the stated conditions for determining eligibility for home or facility medical assistance care is to disclose any interest the individual Medicaid applicant or spouse has in any annuity. Additionally, the State of California becomes a remainder beneficiary of certain annuities as specified in the regulation. This is automatic unless the annuity owner notifies the state in writing prohibiting the state from becoming a remainder beneficiary. When an individual notifies the State (in writing) that it (the state of California) is being denied an annuity position as a remainder beneficiary, when the law clearly gives the State that position, the law says that the annuity will be treated as "a transfer of assets for less than market value" for purposes of determining Medi-Cal eligibility. The California Department of Health Care Services is required to inform all Medicaid applicants and spouses of the need to provide accurate information about their annuities and the resulting implications of their answers.
Undue Hardship Exception
The department will create procedures that ensure the following: - During the initial request and during each annual redetermination, the department or county will give every applicant for medical assistance for home and facility care a notice about the undue hardship process. This notice includes a statement that undue hardship is considered before a denial occurs. - The process to determine if an undue hardship exists and an exception is granted will be both simple and timely. - When an undue hardship issue is considered and not granted, the department will supply the individual with a notice explaining the reasons for the adverse determination. The notice will also state how to appeal the adverse determination. At the request of the applicant, beneficiary, or legal representative, undue hardship notices can also be provided to the home and facility care administrator (as per department regulations).
Allegations of Misconduct against a Person 65 Years or Over
The department will hold a hearing within 90 days after receiving a notice of defense involving allegations of misconduct perpetrated against anyone age 65 or older. The judge may grant a continuance of the hearing when one or more of the following circumstances exists: Death or incapacitating illness of a party; representative or attorney of a party; essential witness; parent, child, or member of the household of any of these (when a substitution cannot be made due to the proximity of the hearing). Lack of proper hearing notice. A material change (parties or pleadings) in the status of the case requires postponement; an executed settlement or stipulated findings of fact makes a hearing unnecessary (partial amendment of pleadings is not cause for continuance since a hearing would have to be held for un-amended portion of pleadings). A signed request for continuance signed by all parties and received by the administrative law judge no later than 25 business days before the hearing. A required substitution of a representative or attorney. Any essential party being required to appear in a different, conflicting judicial matter (the conflicting, judicial matter must not have been known at the time the hearing was set and this request must be immediately communicated to the judge). The unavailability of any essential party due to an unavoidable emergency. Failure by any party to comply with a timely discovery request (when the request for continuance is made by the same party that requested the discovery).
Home Equity Cont'd
The final step in this equation is to subtract from the lower value all mortgages and encumbrances. This results in the amount of equity interest. The equity interest regulation does not apply to any individual if any of the following circumstances exist: The individual's spouse still resides in the home. The individual's child under age twenty-one lives at home. The individual's child over age twenty-one lives at home, and is blind or disabled. The individual was determined to be eligible for home and facility medical assistance care was approved before the regulation was adopted. The department rules that ineligibility would result in a demonstrated hardship on the individual. The individual's equity interest would not exceed the limit if the increase instead was based on the quarterly House Price Index (HPI) for California published by the Office of Federal Housing Enterprise Oversight (OFHEO). The applicant or beneficiary has been denied a home equity loan by at least three lending institutions. The applicant or beneficiary is ineligible for a Federal Housing Administration (FHA) approved loan or reverse mortgage. The applicant or beneficiary, with good cause, is unable to provide verification of the equity value. The limits on home equity and other financial assets will be increased to adjust for insurance benefits received if the individual has purchased a long-term care policy certified under the California Partnership Program. To the extent that federal financial participation is unable to cover additional costs associated with increased Medi-Cal limits resulting from the LTC Partnership Program, these additional costs will be paid out of state general funds.
Free Look (Variable Annuity)
Variable annuity contracts, variable life insurance contracts, or modified guaranteed contracts, are required to have the following notice either: - Printed on the cover page or policy jacket in 12-point bold print with one inch of space on all sides, or - Printed on a sticker that is affixed to the cover page or policy jacket: Important You have purchased a Variable Annuity Contract(Variable Life Insurance Contract, or a Modified Guaranteed Contract) Carefully review it for limitations This policy may be returned within 30 days from the date you received it. During that 30-day period, your money will be placed in a fixed account or money-market fund, unless you direct the premium be invested in a stock or bond portfolio underlying the contract during the 30-day period. If you do not direct that the premium be invested in a stock or bond portfolio, and if you return the policy within the 30-day period, you will be entitled to a refund of the premium and policy fees. If you direct that the premium be invested in a stock or bond portfolio during the 30-day period, and if you return the policy during that period, you will be entitled to a refund of the policy's account value on the day the policy is received by the insurance company or agent who sold you this policy, which could be less than the premium you paid for the policy. A return of the policy after 30 days may result in a substantial penalty, known as a Surrender Charge. The words "known as a surrender charge" may be deleted if the contract does not contain those charges. In addition, contracts sold to seniors that contain a surrender charge period, must either disclose the surrender period and all associated penalties in 12-point bold print on the cover sheet of the policy, or disclose the location of the surrender information in bold 12-point print on the cover page of the policy, or printed on a sticker that is affixed to the cover page or to the policy jacket.