806 Kar 12:150. Annuity Disclosures

Link to law: http://www.lrc.ky.gov/kar/806/012/150.htm
Published: 2015

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      806 KAR 12:150.

Annuity disclosures

 

      RELATES

TO: KRS 304.12-010, 304.12-020, 304.12-230, 26 U.S.C. 401, 403, 414, 457, 29

U.S.C. 1001-1461

      STATUTORY

AUTHORITY: KRS 304.2-110

      NECESSITY,

FUNCTION, AND CONFORMITY: KRS 304.2-110(1) authorizes the Commissioner of the

Department of Insurance to promulgate administrative regulations necessary for

or as an aid to the effectuation of any provision of the Kentucky Insurance

Code, KRS Chapter 304. This administrative regulation requires insurers to

deliver information to purchasers of annuities that will improve the buyer’s

ability to select the most appropriate annuity for the buyer’s needs and

improve the buyer’s understanding of the basic features of the product that has

been purchased or is under consideration.

 

      Section

1. Definitions. (1) "Buyer’s Guide" means the current Annuity Buyer’s

Guide published by the Commonwealth of Kentucky Department of Insurance.

      (2)

"Charitable gift annuity" is defined in KRS 304.1-120(6)(b).

      (3)

"Contract owner" means the owner named in the annuity contract or

certificate holder in the case of a group annuity contract.

      (4)

"Determinable elements" means elements derived from processes or

methods that are guaranteed at issue and not subject to company discretion, but

ones in which the values or amounts cannot be determined until some point after

issue. These elements include the premiums, credited interest rates including

any bonus, benefits, values, noninterest based credits, charges, or elements of

formulas used to determine at issue. An element is determinable if it was calculated

from underlying determinable elements only, or from both determinable and

guaranteed elements.

      (5)

"Funding agreement" means an agreement for an insurer to accept and

accumulate funds and to make one (1) or more payments at future dates in

amounts that are not based on mortality or morbidity contingencies.

      (6)

"Generic name" means a short title descriptive of the annuity

contract being applied for or illustrated.

      (7)

"Guaranteed elements" means the premiums and credited interest rates,

including any bonus, benefits, values, noninterest based credits, charges, or

elements of formulas used to determine any of these, that are guaranteed and

determined at issue. An element is guaranteed if all of the underlying elements

that go into its calculation are guaranteed.

      (8)

"Nonguaranteed elements" means the premiums and credited interest

rates including any bonus, benefits, values, non-interest based credits,

charges, or elements of formulas used to determine any of these, that are

subject to company discretion and are not guaranteed at issue. An element is

nonguaranteed if any of the underlying nonguaranteed elements are used in its

calculation.

      (9)

"Structured settlement annuity" means:

      (a)

A "qualified funding asset" as defined in 26 U.S.C. 130(d); or

      (b)

An annuity that would be a qualified funding asset pursuant to 26 U.S.C. 130(d)

except for the fact that it is not owned by an assignee under a qualified

assignment.

 

      Section

2. Applicability. This administrative regulation shall apply to all group and

individual annuity contracts and certificates except:

      (1)

Registered or nonregistered variable annuities or other registered products;

      (2)(a)

Annuities used to fund:

      1.

An employee pension plan which is covered by the Employee Retirement Income

Security Act (ERISA), codified as 29 U.S.C. 1001 to 1461;

      2.

A plan described by 26 U.S.C. 401(a), (k), or 403(b), if the plan, for purposes

of ERISA, is established or maintained by an employer;

      3.

A governmental or church plan defined in 26 U.S.C. 414 or a deferred

compensation plan of a state or local government or a tax exempt organization

under 26 U.S.C. 457; or

      4.

A nonqualified deferred compensation arrangement established or maintained by

an employer or plan sponsor;

      (b)1.

Notwithstanding paragraph (a) of this subsection, this administrative

regulation shall apply to annuities used to fund a plan or arrangement that is

funded solely by contributions an employee elects to make, whether on a pre-tax

or after-tax basis, and if the insurance company has been notified that plan

participants may choose from among two (2) or more fixed annuity providers and

there is a direct solicitation of an individual employee by a producer for the

purchase of an annuity contract; and

      2.

As used in this subsection, direct solicitation shall not include a meeting

held by a producer solely for the purpose of educating or enrolling employees

in the plan or arrangement;

      (3)

Structured settlement annuities;

      (4)

Charitable gift annuities; and

      (5)

Funding agreements.

 

      Section

3. Standards for the Disclosure Document and Buyer’s Guide. (1)(a) If the

application for an annuity contract is solicited personally by an agent, the

applicant shall be given both the disclosure document described in subsection

(3) of this section and the Buyer’s Guide no later than the time of application.

      (b)

If the application for an annuity contract is taken by means other than a

personal solicitation by an agent, the applicant shall be sent both the disclosure

document described in subsection (3) of this section and the Buyer’s Guide no

later than five (5) business days after the completed application is received

by the insurer.

      1.

With respect to an application received as a result of a direct solicitation

through the mail:

      a.

Providing a Buyer’s Guide in a mailing inviting prospective applicants to apply

for an annuity contract shall satisfy the requirement that the Buyer’s Guide be

provided no later than five (5) business days after receipt of the application;

or

      b.

Providing a disclosure document in a mailing inviting a prospective applicant

to apply for an annuity contract shall satisfy the requirement that the

disclosure document be provided no later than five (5) business days after

receipt of the application.

      2.

With respect to an application received via the Internet:

      a.

Taking reasonable steps to make the Buyer’s Guide available for viewing and

printing on the insurer’s Web site shall satisfy the requirement that the

Buyer’s Guide be provided no later than five (5) business days after receipt of

the application; or

      b.

Taking reasonable steps to make the disclosure document available for viewing

and printing on the insurer’s Web site shall satisfy the requirement that the

disclosure document be provided no later than five (5) business days after

receipt of the application.

      3.

A solicitation for an annuity contract that is not personally solicited by an

agent shall include a statement that the proposed applicant may obtain a free

Annuity Buyer's Guide by contacting the Department of Insurance or the insurer.

      (c)

1. If the Buyer’s Guide and disclosure document described in subsection (3) of

this section are not provided at or before the time of application, a free look

period of no less than fifteen (15) days shall be provided for the applicant to

return the annuity contract without penalty.

      2.

This free look period shall run concurrently with any other free look period

provided under state law or administrative regulation.

      (2)

The following information shall be included in the disclosure document:

      (a)

The generic name of the contract, the company product name, if different, the

form number, and the fact that it is an annuity;

      (b)

The insurer’s name and address;

      (c)

A description of the contract and its benefits, emphasizing its long-term

nature, including the following information:

      1.

The guaranteed, nonguaranteed, and determinable elements of the contract and

their limitations, if any, and an explanation of how they operate;

      2.

An explanation of the initial crediting rate, specifying any bonus or

introductory portion, the duration of the rate, and the fact that rates may

change from time to time and shall not be guaranteed;

      3.

Periodic income options both on a guaranteed and nonguaranteed basis;

      4.

Value reductions caused by withdrawals from or surrender of the contract;

      5.

How values in the contract can be accessed;

      6.

The death benefit, if available, and how it will be calculated;

      7.

A summary of the federal tax status of the contract and any penalties

applicable on withdrawal of values from the contract; and

      8.

An explanation of the impact of a rider, such as a long-term care rider;

      (d)

Specific dollar amount or percentage charges and fees shall be listed with an

explanation of how they apply; and

      (e)

Information about the current guaranteed rate for new contracts that contains a

clear notice that the rate is subject to change.

      (3)

The disclosure statement shall comply with the minimum standards for

readability and intelligibility established in 806 KAR 14:121.

 

      Section

4. Report to Contract Owners. For annuities in the payout period with changes

in nonguaranteed elements and for the accumulation period of a deferred

annuity, the insurer shall provide each contract owner with a report, at least

annually, on the status of the contract that contains at least the following

information:

      (1)

The beginning and end date of the current report period;

      (2)

The accumulation and cash surrender value, if any, at the end of the previous

report period and at the end of the current report period;

      (3)

The total amounts, if any, that have been credited, charged to the contract

value or paid during the current report period; and

      (4)

The amount of outstanding loans, if any, as of the end of the current report

period.

 

      Section

5. Effective Date. The requirements of this administrative regulation shall not

be implemented or enforced prior to the effective date, determined pursuant to

KRS 13A.330, or January 1, 2012, whichever is later.

 

      Section

6. Incorporation by Reference. (1) "The Annuity Buyer's Guide,

Commonwealth of Kentucky", July 2011, is incorporated by reference.

      (2)

This material may be inspected, copied, or obtained, subject to applicable

copyright law, at the Department of Insurance, 215 West Main Street, Frankfort,

Kentucky 40601, Monday through Friday 8 a.m. to 4:30 p.m.

      (3)

This material is also available on the department's Web site at http://insurance.ky.gov/.(33 Ky.R.

4299; 34 Ky.R. 293; 734; eff. 11-2-2007; 37 Ky.R. 1084; 1712; eff. 3-4-2011; 38

Ky.R. 326; 764; eff. 11-4-11.)