Purpose

Exempts supplemental annuity contracts relating to deferred annuities from the return and refund provisions outlined in current statute.

Background

An annuity is a contract, usually sold by an insurance company that makes periodic payments to the holder at a future date, usually beginning at retirement. A fixed annuity pays a guaranteed rate and guarantees principal. A variable annuity produces investment returns based on the performance of the investments made through the annuity. An immediate annuity begins making payments right away, rather than several years from now. A deferred annuity makes payments at a point in the future for a defined period of time. In Arizona, when consumers purchase annuity contracts, they have the right to ask for factual information regarding their annuity and for a refund of their investment for a limited period of time following the disclosure their return of the annuity. This is known as a “free look” period.

One rare type of annuity contract involves a contract to purchase – which is subject to the “free look” – and a distinct contract for disbursement which, it is argued, is not. These annuities treat the disbursement portion of the contract as an extension to the to the deferred annuity purchase contract. Typically, in these cases, the disbursement contract is never offered to the general public, but only to individuals who complete the investment portion of the contract and the pay-out portion is treated as a separate contract that focuses on the terms of the annual payments. If, as some may suggest, the second disbursement portion of the contract were subject to the first look provision, then individuals selling these types of annuities would be at a disadvantage. And it may be argued that the consumers of the state are harmed by not having a full range of investment options available to them.

This measure exempts the disbursement portions of deferred annuity contracts (or as supplemental contracts to deferred annuity contracts) from the part of the provision regarding the return and refund rights.

There is no anticipated fiscal impact to the state general fund associated with this legislation.

Provisions

1. Exempts the annuity contracts that are issued supplemental to a deferred annuity contract from annuity return and refund requirements.

2. Provides for a general effective date.

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