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A BILL TO BE ENTITLED
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AN ACT
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relating to the sale and marketing of life insurance and annuities. |
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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 ANNUITY |
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TRANSACTIONS |
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SUBCHAPTER A. GENERAL PROVISIONS |
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Sec. 1116.001. PURPOSES. The purpose of this chapter is 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 assigned |
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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. (a) |
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For purposes of this chapter, "guaranteed element" means an element |
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listed in Sections 1116.003(a)(1)-(7) that is guaranteed and |
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determined at issue. An element is considered guaranteed if all of |
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the underlying elements used in its computation are 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) immediate and deferred annuities that do not |
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contain elements that are nonguaranteed; |
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(2) 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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(3) a structured settlement annuity; |
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(4) a charitable gift annuity qualified under Chapter |
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102; |
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(5) a funding agreement; or |
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(6) 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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(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. |
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(b) In adopting buyer's guides under this section, the |
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commissioner may adopt the buyer's guides published by the National |
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Association of Insurance Commissioners or similar comprehensive |
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guides produced by the department or published by national |
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insurance organizations recognized by the commissioner. If a |
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buyer's guide to a particular type of annuity has not been adopted |
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nationally, the commissioner may not adopt a buyer's guide for that |
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type of annuity. |
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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. An |
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unconditional refund without penalty for purposes of this |
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subsection for variable or modified guaranteed annuity contracts |
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shall mean a refund equal to the cash surrender value provided in |
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the annuity contract, plus any fees or charges deducted from the |
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premiums or imposed under the contract. The refund and free look |
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period in this subsection do not apply if the prospective owner is |
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an accredited investor, as defined in Regulation D as adopted by the |
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United States Securities and Exchange Commission. |
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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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document 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 document is directed. |
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(c) A disclosure document that complies with the Financial |
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Industry Regulatory Authority (FINRA) Conduct Rules and Securities |
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and Exchange Commission prospectus requirements satisfies the |
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requirements of this section for disclosure documents. This |
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subsection does not limit the commissioner's ability to enforce the |
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provisions of this section or require the use of a FINRA-approved |
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disclosure document. This subsection is intended to grant a safe |
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harbor under this chapter for an annuity contract that is regulated |
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by, and complies with, the FINRA Conduct Rules and the SEC |
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prospectus requirements pertaining to disclosure. |
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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. Section 1114.004(a), Insurance Code, is amended |
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to read as follows: |
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(a) Except as otherwise specifically provided by this |
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chapter, this chapter does not apply to transactions involving: |
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(1) credit life insurance; |
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(2) group life insurance or group annuities for which |
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there is no direct solicitation of individuals by an agent; |
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(3) [group] life insurance and annuities used to fund |
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prepaid funeral benefits contracts, as defined by Chapter 154, |
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Finance Code; |
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(4) an application to: |
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(A) exercise a contractual change or a conversion |
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privilege made to the insurer that issued the existing policy or |
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contract; |
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(B) replace an existing policy or contract by the |
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insurer that issued the existing policy or contract under a program |
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filed with and approved by the commissioner; or |
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(C) exercise a term conversion privilege among |
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corporate affiliates; |
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(5) life insurance proposed to replace life insurance |
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under a binding or conditional receipt issued by the same insurer; |
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(6) a policy or contract used to fund: |
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(A) an employee pension benefit plan or employee |
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welfare benefit plan that is covered by the Employee Retirement |
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Income Security Act of 1974 (29 U.S.C. Section 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, if established or |
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maintained by an employer; |
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(C) a government or church plan, as defined by |
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Section 414, Internal Revenue Code of 1986, a government or church |
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welfare benefit plan, or a deferred compensation plan of a state or |
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local government or tax exempt organization described under Section |
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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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(7) new coverage provided under a life insurance |
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policy or contract if the cost is borne wholly by the insured's |
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employer or by an association of which the insured is a member; |
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(8) an existing life insurance policy that is a |
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nonconvertible term life insurance policy scheduled to expire in |
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five years or less and that cannot be renewed; |
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(9) immediate annuities purchased with proceeds from |
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an existing contract; or |
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(10) structured settlements. |
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SECTION 3. Section 541.058(b), Insurance Code, is amended |
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to read as follows: |
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(b) It is not a rebate or discrimination prohibited by |
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Section 541.056(a) or 541.057: |
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(1) for a life insurance or life annuity contract, to |
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pay a bonus to a policyholder or otherwise abate the policyholder's |
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premiums in whole or in part out of surplus accumulated from |
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nonparticipating insurance policies if the bonus or abatement: |
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(A) is fair and equitable to policyholders; and |
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(B) is in the best interests of the insurer and |
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its policyholders; |
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(2) for a life insurance policy issued on the |
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industrial debit plan, to make to a policyholder who has |
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continuously for a specified period made premium payments directly |
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to the insurer's office an allowance in an amount that fairly |
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represents the saving in collection expenses; |
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(3) for a group insurance policy, to readjust the rate |
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of premium based on the loss or expense experience under the policy |
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at the end of a policy year if the adjustment is retroactive for |
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only that policy year; |
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(4) for a life annuity contract, to waive surrender |
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charges under the contract when the contract holder exchanges that |
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contract for another annuity contract issued by the same insurer or |
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an affiliate of the same insurer that is part of the same holding |
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company group if: |
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(A) the waiver and the exchange are fully, |
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fairly, and accurately explained to the contract holder in a manner |
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that is not deceptive or misleading; and |
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(B) the contract holder is given credit for the |
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time that the prior contract was held when determining any |
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surrender charges under the new contract; |
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(5) in connection with an accident and health |
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insurance policy, to provide to policy or certificate holders, in |
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addition to benefits under the terms of the insurance contract, |
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health-related services or health-related information, or to |
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disclose the availability of those additional services and |
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information to prospective policy or certificate holders; or |
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(6) in connection with a health maintenance |
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organization evidence of coverage, to provide to enrollees, in |
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addition to benefits under the evidence of coverage, health-related |
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services or health-related information, or to disclose the |
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availability of those additional services and information to |
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prospective enrollees or contract holders. |
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SECTION 4. Subchapter B, Chapter 1114, Insurance Code, is |
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amended by adding Section 1114.057 to read as follows: |
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Sec. 1114.057. DISCLOSURE OF AVAILABILITY OF WAIVER OF |
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SURRENDER CHARGES. An insurer that offers to waiver surrender |
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charges consistent with Section 541.058(b)(4) of this code shall |
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provide reasonable notice of such offer to its prospective or |
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current contract holders. Such notice may be included through any |
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available means, including a disclosure document or displayed on a |
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link that is prominently placed on the insurer's web page. |
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SECTION 5. 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 6. This Act takes effect September 1, 2009. |
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* * * * * |