A new California law protecting consumers who buy annuities will go into effect Jan. 1.
The law will require insurance companies to verify that an annuity purchase, replacement or exchange is reasonably suitable for the consumer based on an evaluation of the person's age, income, liquidity needs and financial objectives, among other factors. It will also require that a consumer receive a tangible net benefit from an annuity purchase. The law gives the state's Department of Insurance the authority to revoke an insurance agent's license, impose fines or order that lost funds be restored to a consumer when an unsuitable annuity is sold.
An annuity is an investment product sold by life insurance companies to provide an income stream during retirement.
"For far too long, seniors have been victimized by the aggressive marketing and sale of annuity products that may not be suitable for them," Dave Jones, California insurance commissioner, said in a press statement. "Consumers have unwittingly bought these products not realizing that their invested funds will not be available to them, or their funds are terribly expensive to recover if they want to withdraw their money to pay for immediate expenses."
Jones said recent census figures showing rapid growth of the senior population point to an even greater need for the law. The number of people 65 and older is 40.3 million, according the 2010 U.S. census, up 5.3 million from the 2000 census.