Key Takeaways
- California requires a 30-day free look period for all annuity contracts
- California follows the NAIC Suitability in Annuity Transactions Model Regulation
- Senior-specific annuity protections require 5-day waiting period after recommendation for buyers 65+
- Annuity replacements require detailed comparison of existing and proposed contracts
- California prohibits surrender charges exceeding 10% and limits surrender charge periods
California Annuity Regulations
California has adopted comprehensive annuity regulations to protect consumers, particularly seniors, from unsuitable sales and deceptive practices.
Free Look Period
California provides a 30-day free look period for all annuity contracts:
- Applies to all annuity types (fixed, variable, indexed)
- Buyer can return for full premium refund
- No penalty for exercising free look
- Period begins when policy is delivered
Suitability Requirements
California adopted the NAIC Suitability in Annuity Transactions Model Regulation with additional state requirements:
Producer Duties
Before recommending an annuity, the producer must:
- Make reasonable efforts to obtain customer information
- Analyze whether the recommendation is suitable
- Document the basis for the recommendation
- Disclose all material information about the product
Required Information
| Category | Information Required |
|---|---|
| Financial Status | Income, liquid assets, financial needs |
| Tax Status | Tax bracket, qualified vs. non-qualified funds |
| Investment Objectives | Goals, time horizon, risk tolerance |
| Existing Coverage | Current annuities and life insurance |
| Liquidity Needs | Expected need for funds |
Best Interest Standard
Effective January 2022, California requires:
- Recommendations in the best interest of the consumer
- Compensation cannot be primary motivator
- Material conflicts must be disclosed
- Enhanced documentation requirements
Senior-Specific Protections
California has special rules for annuity sales to seniors (age 65+):
5-Day Waiting Period
For buyers age 65 or older:
- 5-day waiting period between recommendation and sale
- Allows time to consult with family or advisors
- Cannot pressure or rush the sale
- Producer must inform senior of this right
Enhanced Disclosures
Seniors must receive:
- Clear explanation of surrender charges
- Comparison with existing contracts
- Disclosure of commissions earned
- Written confirmation of suitability
Exam Tip: The 5-day waiting period for seniors is a California-specific rule. Remember it applies to buyers 65 and older.
Surrender Charge Limitations
California limits surrender charges on annuities:
| Limit | Requirement |
|---|---|
| Maximum Rate | 10% in first year |
| Duration | Cannot exceed reasonable period |
| Disclosure | Must clearly explain in writing |
| Free Withdrawal | Must allow some penalty-free access |
Replacement Requirements
When replacing an existing annuity, producers must:
Documentation Required
- Comparison statement - Side-by-side comparison of old and new contract
- Replacement form - Signed acknowledgment of replacement
- Suitability analysis - Why replacement is appropriate
- Notice to existing insurer - Notification of pending replacement
Red Flags
CDI scrutinizes replacements for:
- Short holding periods before replacement
- Surrender charges not fully explained
- New surrender charge period starting over
- Commission-motivated churning
What is the waiting period requirement for annuity sales to California seniors age 65 and older?
What is the maximum surrender charge allowed in the first year of an annuity in California?