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California Requires Fair Dealing in LTCi Sales

Wed, 09/13/2000 - 12:00am — Karen Stevenson
Description: 

The California Legislature has enrolled AB 2107, which requires that all insurers, brokers, agents, and others engaged in the business of insurance owe a policyholder or a prospective policyholder a duty of honesty, and a duty of good faith and fair dealing.

The bill stipulates that if a life agent offers to sell to an elder any life insurance or annuity product, they must advise the client writing that the sale or liquidation of financial assets to fund the purchase of this product may have tax consequences, early withdrawal penalties, or other costs or penalties as a result of the sale or liquidation, and that the elder or elder's agent may wish to consult independent legal or financial advice before selling or liquidating any assets and prior to the purchase of any new products.

A life agent who offers for sale or sells a financial product to an elder on the basis of the product's treatment under the Medi-Cal program may not negligently misrepresent the treatment of any asset under the statutes and rules and regulations of the Medi-Cal program, as it pertains to the determination of the elder's eligibility for any program of public assistance. A life agent who offers for sale or sells any financial product on the basis of its treatment under the Medi-Cal program shall provide, in writing, a specified disclosure that indicates it is not necessary to expend all of their savings before applying for Medi-Cal, and outlines the financial eligibility rules for Medi-Cal.

The bill also clarifies that "Financial abuse" of an elder or dependent adult occurs when a person or entity takes, secretes, appropriates, or retains, or assists in taking, secreting, appropriating, or retaining real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud.

This bill underwent substantial revisions in response to concerns expressed by the insurance industry and other professionals. The original version of this bill would have forbidden lawyers to sell annuities to their clients, or to receive compensation for referring clients to insurance agents or brokers, and would have restricted agents? ability to recommend that older customers sell assets to pay for LTC arrangements. If the original version had been enacted, agents would be allowed to make LTC recommendations involving asset sales only if they held Series 7 licenses from the National Association of Securities Dealers and were certified financial planners or certified financial analysts, according to the bill text.

The California Legislature has enrolled AB 2107, which requires that all insurers, brokers, agents, and others engaged in the business of insurance owe a policyholder or a prospective policyholder a duty of honesty, and a duty of good faith and fair dealing.

The bill stipulates that if a life agent offers to sell to an elder any life insurance or annuity product, they must advise the client writing that the sale or liquidation of financial assets to fund the purchase of this product may have tax consequences, early withdrawal penalties, or other costs or penalties as a result of the sale or liquidation, and that the elder or elder's agent may wish to consult independent legal or financial advice before selling or liquidating any assets and prior to the purchase of any new products.

A life agent who offers for sale or sells a financial product to an elder on the basis of the product's treatment under the Medi-Cal program may not negligently misrepresent the treatment of any asset under the statutes and rules and regulations of the Medi-Cal program, as it pertains to the determination of the elder's eligibility for any program of public assistance. A life agent who offers for sale or sells any financial product on the basis of its treatment under the Medi-Cal program shall provide, in writing, a specified disclosure that indicates it is not necessary to expend all of their savings before applying for Medi-Cal, and outlines the financial eligibility rules for Medi-Cal.

The bill also clarifies that "Financial abuse" of an elder or dependent adult occurs when a person or entity takes, secretes, appropriates, or retains, or assists in taking, secreting, appropriating, or retaining real or personal property of an elder or dependent adult to a wrongful use or with intent to defraud.

This bill underwent substantial revisions in response to concerns expressed by the insurance industry and other professionals. The original version of this bill would have forbidden lawyers to sell annuities to their clients, or to receive compensation for referring clients to insurance agents or brokers, and would have restricted agents? ability to recommend that older customers sell assets to pay for LTC arrangements. If the original version had been enacted, agents would be allowed to make LTC recommendations involving asset sales only if they held Series 7 licenses from the National Association of Securities Dealers and were certified financial planners or certified financial analysts, according to the bill text.