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A BILL TO BE ENTITLED
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AN ACT
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relating to disclosure of certain information regarding annuity |
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transactions. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Subtitle A, Title 7, Insurance Code, is amended |
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by adding Chapter 1116 to read as follows: |
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CHAPTER 1116. DISCLOSURE OF INFORMATION REGARDING |
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ANNUITY TRANSACTIONS |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 1116.001. PURPOSES. The purpose of this chapter is |
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to: |
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(1) protect consumers and foster consumer education by |
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providing standards for the disclosure of certain minimum |
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information about annuity contracts; and |
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(2) ensure that purchasers of annuity contracts |
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understand certain basic features of annuity contracts. |
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Sec. 1116.002. GENERAL DEFINITIONS. In this chapter: |
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(1) "Buyer's guide" means a buyer's guide published or |
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adopted by the department under Section 1116.006. |
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(2) "Charitable gift annuity" has the meaning |
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assigned by Section 102.001. |
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(3) "Contract owner" means the owner named in the |
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annuity contract or, in the case of a group annuity contract, the |
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certificate holder. |
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(4) "Funding agreement" means an agreement for an |
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insurer to accept and accumulate funds and to make one or more |
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payments at future dates in amounts that are not based on mortality |
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or morbidity contingencies. |
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(5) "Generic name" means a short title descriptive of |
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the annuity contract being illustrated or for which an applicant is |
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applying, such as "single premium deferred annuity." |
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(6) "Structured settlement annuity" means: |
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(A) a "qualified funding asset," as defined by |
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Section 130(d), Internal Revenue Code of 1986; or |
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(B) an annuity that would be a qualified funding |
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asset but for the fact that the annuity is not owned by an assignee |
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under a qualified assignment. |
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Sec. 1116.003. DETERMINABLE ELEMENTS. (a) For purposes of |
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this chapter, "determinable elements" means elements derived from |
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processes or methods that are guaranteed at issue and are not |
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subject to company discretion, but for which the values or amounts |
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cannot be determined until some point after issue. The term |
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includes: |
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(1) premiums; |
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(2) credited interest rates, including any bonus; |
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(3) benefits; |
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(4) values; |
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(5) noninterest based credits; |
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(6) charges; and |
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(7) elements of formulas used to determine any element |
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described by Subdivisions (1)-(6). |
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(b) Determinable elements may be described as guaranteed |
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but not determined at issue. An element is considered determinable |
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if the element was computed from only underlying determinable |
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elements, or from both determinable and guaranteed elements. |
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Sec. 1116.004. GUARANTEED AND NONGUARANTEED ELEMENTS. |
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(a) For purposes of this chapter, "guaranteed element" means an |
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element listed in Sections 1116.003(a)(1)-(7) that is guaranteed |
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and determined at issue. An element is considered guaranteed if |
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all of the underlying elements used in its computation are |
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guaranteed. |
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(b) For purposes of this chapter, "nonguaranteed element" |
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means an element listed in Sections 1116.003(a)(1)-(7) that is |
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subject to the insurer's discretion and is not guaranteed at issue. |
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An element is considered nonguaranteed if any underlying element |
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used in its computation is nonguaranteed. |
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Sec. 1116.005. APPLICABILITY; SCOPE. (a) Except as |
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provided by Subsection (b), this chapter applies to all group and |
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individual annuity contracts and certificates. |
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(b) This chapter does not apply to: |
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(1) registered or nonregistered variable annuities or |
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other registered products; |
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(2) immediate and deferred annuities that do not |
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contain elements that are nonguaranteed; |
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(3) annuities used to fund: |
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(A) an employee pension plan subject to the |
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Employee Retirement Income Security Act of 1974 (29 U.S.C. Section |
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1001 et seq.); |
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(B) a plan described by Section 401(a), 401(k), |
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or 403(b), Internal Revenue Code of 1986, in which the plan, for |
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purposes of the Employee Retirement Income Security Act of 1974 (29 |
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U.S.C. Section 1001 et seq.), is established or maintained by an |
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employer; |
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(C) a governmental or church plan as defined by |
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Section 414, Internal Revenue Code of 1986, or a deferred |
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compensation plan of a state or local government or a tax-exempt |
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organization under Section 457, Internal Revenue Code of 1986; or |
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(D) a nonqualified deferred compensation |
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arrangement established or maintained by an employer or plan |
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sponsor; |
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(4) a structured settlement annuity; |
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(5) a charitable gift annuity qualified under Chapter |
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102; or |
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(6) a funding agreement. |
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(c) This chapter applies to an annuity used to fund a plan or |
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arrangement that is funded solely by contributions an employee |
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elects to make, whether on a pretax or after-tax basis, if the |
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insurer has been notified that plan participants may choose from |
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among two or more fixed annuity providers and there is a direct |
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solicitation of an individual employee by a producer for the |
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purchase of an annuity contract. As used in this subsection, |
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"direct solicitation" does not include a meeting held by a producer |
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solely for the purpose of educating or enrolling employees in the |
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plan or arrangement. |
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Sec. 1116.006. BUYER'S GUIDES. (a) The commissioner by |
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rule shall adopt buyer's guides for consumers who are considering |
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purchasing an annuity contract or certificate, including a guide to |
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fixed deferred annuities and a guide to equity indexed annuities. |
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(b) In adopting buyer's guides under this section, the |
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commissioner may adopt the Buyer's Guide for Fixed Deferred |
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Annuities or the Buyer's Guide for Equity-Indexed Annuities |
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published by the National Association of Insurance Commissioners, |
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or similar comprehensive guides produced by the department or |
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published by another national insurance organization recognized by |
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the commissioner. |
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Sec. 1116.007. EFFECT ON OTHER LAW. Compliance with this |
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chapter or rules implementing this chapter is not an affirmative |
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defense in any action brought by or for the department alleging a |
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violation of Chapter 541, 1114, or 1115. |
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[Sections 1116.008-1116.050 reserved for expansion] |
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SUBCHAPTER B. DISCLOSURES AND DISCLOSURE STANDARDS |
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Sec. 1116.051. STANDARDS FOR DISCLOSURE DOCUMENT AND |
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BUYER'S GUIDE. (a) If an application for an annuity contract or |
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certificate is taken in a face-to-face meeting, the applicant shall |
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be given, at or before the time of application, both the disclosure |
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document described by Section 1116.052 and the appropriate buyer's |
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guide. |
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(b) If the application is taken by means other than in a |
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face-to-face meeting, the applicant shall be sent both the |
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disclosure document and the appropriate buyer's guide not later |
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than the fifth business day after the date on which the completed |
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application is received by the insurer. |
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(c) If the application is received as a result of a direct |
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solicitation through the mail, providing the appropriate buyer's |
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guide and the disclosure document in a mailing inviting prospective |
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applicants to apply for an annuity contract or certificate is |
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considered to satisfy the requirement that the appropriate buyer's |
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guide and the disclosure document be provided not later than the |
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fifth business day after the date of receipt of the application. |
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(d) If the application is received through the Internet, |
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taking reasonable steps to ensure that the appropriate buyer's |
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guide and the disclosure document are available for viewing and |
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printing on the insurer's website is considered to satisfy the |
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requirement that the appropriate buyer's guide and the disclosure |
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document be provided not later than the fifth business day after the |
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date of receipt of the application. |
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(e) A solicitation for an annuity contract that is provided |
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in a manner other than a face-to-face meeting must include a |
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statement that the proposed applicant may contact the department |
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for a free annuity buyer's guide or that the prospective applicant |
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may contact the insurer for a free annuity buyer's guide. |
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(f) If the appropriate buyer's guide and the disclosure |
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document are not provided at or before the time of application, a |
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free look period of at least 15 days must be provided during which |
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the applicant may return the annuity contract without penalty. |
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This period shall run concurrently with any other free look period |
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required under this code or another law of this state. |
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Sec. 1116.052. DISCLOSURE DOCUMENT. (a) At a minimum, the |
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following information must be included in the disclosure document |
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required to be provided under this chapter: |
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(1) the generic name of the contract, the insurer |
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product name, if different from the generic name, the insurer's |
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form number, and a statement of the fact that the contract is an |
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annuity; |
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(2) the insurer's name and address; |
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(3) a description of the contract and the benefits |
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provided under the contract, emphasizing the contract's long-term |
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nature, and including examples as appropriate; |
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(4) the guaranteed, nonguaranteed, and determinable |
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elements of the contract, any limitations of those elements, and an |
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explanation of how those elements operate; |
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(5) an explanation of the initial crediting rate, |
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specifying any bonus or introductory portion, the duration of the |
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initial crediting rate, and the fact that rates may change from time |
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to time and are not guaranteed; |
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(6) periodic income options, both on a guaranteed and |
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nonguaranteed basis; |
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(7) any value reductions caused by withdrawals from or |
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surrender of the contract; |
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(8) how values in the contract can be accessed; |
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(9) the death benefit, if available, and how the death |
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benefit is computed; |
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(10) a summary of: |
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(A) the federal tax status of the contract; and |
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(B) any penalties applicable on withdrawal of |
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values from the contract; |
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(11) the impact of any rider, such as a long-term care |
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rider; |
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(12) a list of the specific dollar amount or |
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percentage charges and fees, with an explanation of how those |
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charges and fees apply; and |
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(13) information about the current guaranteed rate for |
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new contracts that contains a clear notice that the rate is subject |
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to change. |
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(b) An insurer shall define terms used in the disclosure |
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statement in language that facilitates the understanding by a |
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typical person within the segment of the public to which the |
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disclosure statement is directed. |
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Sec. 1116.053. REPORT TO CONTRACT OWNERS. (a) For |
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annuities in the payout period with changes in nonguaranteed |
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elements and for the accumulation period of a deferred annuity, the |
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insurer shall provide each contract owner with a report, at least |
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annually, on the status of the contract. |
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(b) The report must contain at least the following |
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information: |
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(1) the beginning and ending date of the current |
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reporting period; |
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(2) the accumulation and cash surrender value, if any, |
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at the end of: |
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(A) the previous reporting period; and |
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(B) the current reporting period; |
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(3) the total amounts, if any, that have been |
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credited, charged to the contract or certificate value, or paid |
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during the current reporting period; and |
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(4) the amount of any outstanding loans as of the end |
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of the current reporting period. |
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[Sections 1116.054-1116.100 reserved for expansion] |
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SUBCHAPTER C. ENFORCEMENT |
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Sec. 1116.101. VIOLATION. A violation of a requirement of |
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this chapter by an insurer or agent constitutes an unfair or |
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deceptive act or practice in the business of insurance for purposes |
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of Chapter 541. |
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SECTION 2. The change in law made by this Act applies only |
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to an application for an annuity contract or certificate, or a |
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solicitation for an annuity contract, made on or after January 1, |
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2010. An application for an annuity contract or certificate, or a |
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solicitation for an annuity contract, made before January 1, 2010, |
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is governed by the law in effect immediately before the effective |
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date of this Act, and that law is continued in effect for that |
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purpose. |
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SECTION 3. This Act takes effect September 1, 2009. |