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CA Department of Insurance

New law increases financial protections for seniors investing in annuities

News: 2015 Press Release

For Release: July 16, 2015
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New law increases financial protections for seniors investing in annuities

SACRAMENTO, Calif. - New consumer protections were ushered in yesterday when Governor Brown signed Senate Bill 426 (Leyva) into law. Sponsored by Insurance Commissioner Dave Jones, the new law protects seniors and their beneficiaries from financial losses incurred when insurers apply surrender penalties to annuities paid as a death benefit. 

Seniors often buy annuities to protect themselves from outliving their money, although these contracts also contain death benefit provisions in case the annuitant dies before the annuity begins paying benefits. Surrender penalties are often charged by insurance companies in the first few years of an annuity contract because insurers typically invest in longer duration, liquid assets. Current law allows companies to apply those penalties to death benefits in the same way that a voluntary surrender is charged a penalty. Because of this, early death in an annuity contract can result in minimal interest earnings or even a death benefit that is lower than what was actually paid in premiums.

"Consumer protection and helping seniors avoid possible financial hardship is paramount to the mission of the Department of Insurance," said Commissioner Dave Jones. "While many companies do not currently pay out a death benefit that is less than the premium paid, some insurers do apply surrender penalties reducing the death benefit below the total premiums, which is the reason for this important legislation. I thank Senator Leyva for partnering with me on this change in law."

The new law codifies a current best practice for insurers by requiring that the death benefit for fixed deferred annuities be at least equal to the annuity amount or the accumulation value for those annuities issued to consumers 65 years of age or older. This bill also prohibits companies from charging a surrender penalty on the death benefit payment.

Taking effect on January 1, 2016, SB 426 earned strong bipartisan support in the Legislature and was supported by the California Advocates for Nursing Home Reform, California Health Advocates, Congress of California Seniors and the Elder Financial Protection Network.

Media note: 

Commissioner Jones encourages seniors to learn more about their options by visiting the Senior Information Center on the California Department of insurance web site at

The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $289 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance web site at Non-media inquiries should be directed to the Consumer Hotline at 800.927.HELP or 213.897.8921. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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