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A BILL TO BE ENTITLED
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AN ACT
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relating to certain disclosure standards for certain annuity |
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contracts |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. The Insurance Code is amended by adding a new |
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Chapter 1116 to read as follow: |
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CHAPTER 1116. DISCLOSURE REQUIREMENTS FOR CERTAIN ANNUITY |
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TRANSACTIONS |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 1116.001. Purpose. The purpose of this chapter is to |
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provide standards for the disclosure of certain minimum information |
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about annuity contracts to protect consumers and foster consumer |
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education. This chapter specifies the minimum information which |
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must be disclosed and the method for disclosing it in connection |
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with the sale of annuity contracts. The goal of this chapter is to |
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ensure that purchasers of annuity contracts understand certain |
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basic features of certain annuity contracts. |
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Sec. 1116.002. Definitions. In this chapter: |
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(1) "Buyer's Guide" means the Buyer's Guide for Fixed |
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Deferred Annuities or the Buyer's Guide for Equity Indexed |
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Annuities as adopted by the National Association of Insurance |
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Commissioners and adopted by the Commissioner by rule as provided |
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in this Chapter. |
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(2) "Charitable gift annuity" means a transfer of cash or |
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other property by a donor to a charitable organization in return for |
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an annuity payable over one or two lives, under which the actuarial |
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value of the annuity is less than the value of the cash or other |
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property transferred and the difference in value constitutes a |
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charitable deduction for federal tax purposes, but does not include |
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a charitable remainder trust or a charitable lead trust or other |
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similar arrangement where the charitable organization does not |
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issue an annuity and incur a financial obligation to guarantee |
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annuity payments. |
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(3) "Contract owner" means the owner named in the annuity |
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contract or certificate holder in the case of a group annuity |
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contract. |
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(4) "Determinable elements" means elements that are derived |
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from processes or methods that are guaranteed at issue and not |
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subject to company discretion, but where the values or amounts |
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cannot be determined until some point after issue. These elements |
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include the premiums, credited interest rates (including any |
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bonus), benefits, values, non-interest based credits, charges or |
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elements of formulas used to determine any of these. These elements |
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may be described as guaranteed but not determined at issue. An |
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element is considered determinable if it was calculated from |
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underlying determinable elements only, or from both determinable |
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and guaranteed elements. |
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(5) "Funding agreement" means an agreement for an insurer to |
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accept and accumulate funds and to make one or more payments at |
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future dates in amounts that are not based on mortality or morbidity |
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contingencies. |
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(6) "Generic name" means a short title descriptive of the |
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annuity contract being applied for or illustrated such as "single |
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premium deferred annuity." |
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(7) "Guaranteed elements" means the premiums, credited |
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interest rates (including any bonus), benefits, values, |
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non-interest based credits, charges or elements of formulas used to |
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determine any of these, that are guaranteed and determined at |
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issue. An element is considered guaranteed if all of the underlying |
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elements that go into its calculation are guaranteed. |
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(8) "Non-guaranteed elements" means the premiums, credited |
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interest rates (including any bonus), benefits, values, |
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non-interest based credits, charges or elements of formulas used to |
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determine any of these, that are subject to company discretion and |
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are not guaranteed at issue. An element is considered |
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non-guaranteed if any of the underlying non-guaranteed elements are |
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used in its calculation. |
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(9) "Structured settlement annuity" means a "qualified |
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funding asset" as defined in Section 130(d) of the Internal Revenue |
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Code or an annuity that would be a qualified funding asset under |
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Section 130(d) but for the fact that it is not owned by an assignee |
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under a qualified assignment. |
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Section 1116.003. Applicability and Exemptions. (a) This |
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chapter applies to all group and individual annuity contracts and |
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certificates except: |
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(1) Registered or non-registered variable annuities |
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or other registered products; |
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(2) Immediate and deferred annuities that contain no |
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non-guaranteed elements; |
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(3) Except as provided in Subsection (b) of this |
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section, annuities used to fund: |
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(i) An employee pension plan which is covered by |
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the Employee Retirement Income Security Act (ERISA); |
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(ii) A plan described by Sections 401(a), 401(k) |
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or 403(b) of the Internal Revenue Code, where the plan, for purposes |
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of ERISA, is established or maintained by an employer; |
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(iii) A governmental or church plan defined in |
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Section 414 or a deferred compensation plan of a state or local |
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government or a tax exempt organization under Section 457 of the |
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Internal Revenue Code; or |
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(iv) 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) Structured settlement annuities; |
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(5) Charitable gift annuities; |
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(6) Funding agreements; and |
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(7) An annuity contract used to fund a contract for |
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prepaid funeral benefits, as defined by Chapter 154, Finance Code. |
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(b) Notwithstanding Subsection (a)(3) of this section, this |
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chapter shall apply to annuities used to fund a plan or arrangement |
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that is funded solely by contributions an employee elects to make |
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whether on a pre-tax or after-tax basis, and where the insurance |
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company has been notified that plan participants may choose from |
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among two (2) 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, direct |
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solicitation shall not include any 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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SUBCHAPTER B. DISCLOSURES AND DISCLOSURE STANDARDS |
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Sec. 1116.051. Disclosure Document and Buyer's Guide. (a) |
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Where the application for an annuity contract is taken in a |
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face-to-face meeting, the applicant shall, at or before the time of |
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application, be given both a disclosure document and the applicable |
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Buyer's Guide for either a Fixed Deferred annuity or Equity Indexed |
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annuity based on the application for annuity contract. |
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(b) Where the application for an annuity contract is taken |
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by means other than in a face-to-face meeting, the applicant shall |
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be sent both the disclosure document and the applicable Buyer's |
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Guide no later than five (5) business days after the completed |
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application is received by the insurer. |
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(c) With respect to an application received as a result of a |
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direct solicitation through the mail: |
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(1) Providing a Buyer's Guide in a mailing inviting |
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prospective applicants to apply for an annuity contract shall be |
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deemed to satisfy the requirement that the applicable Buyer's Guide |
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be provided no later than five (5) business days after receipt of |
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the application. |
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(2) Providing a disclosure document in a mailing |
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inviting a prospective applicant to apply for an annuity contract |
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shall be deemed to satisfy the requirement that the disclosure |
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document be provided no later than five (5) business days after |
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receipt of the application. |
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(d) With respect to an application received via the |
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Internet: |
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(1) Taking reasonable steps to make the applicable |
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Buyer's Guide available for viewing and printing on the insurer's |
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website shall be deemed to satisfy the requirement that the Buyer's |
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Guide be provided no later than five (5) business days of receipt of |
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the application. |
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(2) Taking reasonable steps to make the disclosure |
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document available for viewing and printing on the insurer's |
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website shall be deemed to satisfy the requirement that the |
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disclosure document be provided no later than five (5) business |
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days after receipt of the application. |
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(e) A solicitation for an annuity contract provided in other |
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than a face-to-face meeting shall include a statement that the |
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proposed applicant may contact the Texas Insurance Department for a |
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free annuity Buyer's Guide applicable to the type of annuity |
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application. In lieu of the foregoing statement, an insurer may |
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include a statement that the prospective applicant may contact the |
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insurer for a free annuity Buyer's Guide. |
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(f) Where the Buyer's Guide and disclosure document are not |
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provided at or before the time of application, a free look period of |
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no less than fifteen (15) days shall be provided for the applicant |
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to return the annuity contract without penalty. This free look |
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shall run concurrently with any other free look provided under this |
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Code or the laws of this state. |
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Sec. 1116.052. Disclosure Document Standards. At a |
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minimum, the following information shall be included in the |
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disclosure document required to be provided under this chapter: |
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(a) The generic name of the contract, the company product |
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name, if different, and form number, and the fact that it is an |
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annuity; |
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(b) The insurer's name and address; |
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(c) A description of the contract and its benefits, |
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emphasizing its long-term nature, including examples where |
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appropriate: |
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(1) The guaranteed, non-guaranteed and determinable |
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elements of the contract, and their limitation, if any, and an |
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explanation of how they operate; |
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(2) 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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rate and the fact that rates may change from time to time and are not |
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guaranteed; |
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(3) Periodic income options both on a guaranteed and |
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non-guaranteed basis; |
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(4) Any value reductions caused by withdrawals from or |
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surrender of the contract; |
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(5) How values in the contract can be accessed; |
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(6) The death benefit, if available and how it will be |
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calculated; |
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(7) A summary of the federal tax status of the contract |
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and any penalties applicable on withdrawal of values from the |
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contract; and |
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(8) Impact of any rider, such as a long-term care |
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rider. |
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(c) Specific dollar amount or percentage charges and fees |
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shall be listed with an explanation of how they apply. |
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(d) Information about the current guaranteed rate for new |
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contracts that contains a clear notice that the rate is subject to |
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change. |
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(e) Insurers 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. For annuities in |
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the payout period with changes in non-guaranteed elements and for |
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the accumulation period of a deferred annuity, the insurer shall |
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provide each contract owner with a report, at least annually, on the |
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status of the contract that contains at least the following |
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information: |
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(1) The beginning and end date of the current report period; |
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(2) The accumulation and cash surrender value, if any, at |
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the end of the previous report period and at the end of the current |
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report period; |
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(3) The total amounts, if any, that have been credited, |
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charged to the contract value or paid during the current report |
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period; and |
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(4) The amount of outstanding loans, if any, as of the end of |
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the current report period. |
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Sec. 1116.054. Rules. The Commissioner shall adopt by rule |
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Buyer's Guides for fixed, deferred and equity indexed annuities to |
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accomplish the purpose of this Chapter. The Buyer's Guide adopted |
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by the Commissioner shall be the most recent Buyer's Guide for Fixed |
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Deferred Annuities and Buyer's Guide for Equity Indexed Annuities |
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adopted by the National Association of Insurance Commissioners. |
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SUBCHAPTER C. ENFORCEMENT |
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Sec. 1116.101. Sanctions. (a) The commissioner may impose |
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sanctions as provided by Chapter 82 for a violation of this Chapter. |
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(b) The commissioner may reduce or eliminate a sanction for |
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a violation of this chapter otherwise applicable if corrective |
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action for the consumer was taken promptly after a violation was |
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discovered. |
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Sec. 1116.102. Severability. If any provision of this |
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chapter or its application to any person or circumstance is for any |
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reason held to be invalid by any court of law, the remainder of the |
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regulation and its application to other persons or circumstances |
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shall not be affected. |
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SECTION 2. Effective Date. This legislation shall become |
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effective on January 1, 2010 and shall apply to policies, |
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applications and contracts issued or delivered on or after the |
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effective date. |