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California: Illustrations Should Always Be Reasonable

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States should forbid insurers and agents from using misleading annuity illustrations at any time, not simply during the sales process, a regulator says.

Jodi Lerner, a senior staff counsel at the California Department of Insurance, has written about annuity illustration standards in a comment on a draft annuity disclosure regulation update developed by the Annuity Disclosure Working Group at the National Association of Insurance Commissioners California(NAIC), Kansas City, Mo.

Lerner notes that one section of the draft update would set a standard prohibiting “illustrations used in the sale of an annuity contract from describing non-guaranteed elements in a misleading manner.”

“This prohibition should be extended,” Lerner says. “Insurers and producers should be prohibited from disseminating misleading illustrations as well as illustrations that have the capacity or tendency to mislead, regardless of the timing of the dissemination of said illustration.”

The proposed NAIC standards also should apply to all illustrations, regardless of whether the illustrations are used in the sale of an annuity or provided at another time, Lerner says.

Another section of the draft should be changed to require that an annuity surrender charge period be disclosed, and to explain the extent to which surrender charges decrease each year that the surrender charge period is in effect, Lerner says.

The NAIC also should make sure the update reflects the disclosure needs of consumers who are, for example, over the age of 80 as well as the needs of younger consumers, Lerner says.

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