California regulates the surrender-charge schedule on individual deferred annuities sold to seniors. Which statement is correct about a typical compliant surrender-charge schedule?

Explanation

A typical deferred annuity has a multi-year 'declining' surrender-charge schedule (sometimes called the contingent deferred sales charge, CDSC) — for example, 8% in year 1, declining 1% per year to 0% in year 9 — and the schedule must be disclosed at or before sale. California requires clear pre-sale disclosure of the surrender charge schedule (Insurance Code §10127.13) and applies heightened scrutiny when the buyer is age 65 or older — surrender periods that extend beyond the senior's likely time horizon trigger suitability concerns under §10234.93. The statement that charges may continue for the whole life of the contract is wrong — schedules must eventually drop to zero. The statement that California prohibits all surrender charges for buyers 65 or older is wrong — California regulates, but does not ban, surrender charges. And the response limiting charges to the first 30 days with disclosure deferred to the next annual statement confuses surrender charges with the free-look period.