BILL ANALYSIS Ó AB 1747 Page 1 Date of Hearing: May 2, 2012 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair AB 1747 (Feuer) - As Amended: April 26, 2012 SUBJECT : Life Insurance SUMMARY : Establishes notice requirements, reinstatement options, and a grace period for premium payment for life insurance policies. Specifically, this bill : 1)Requires individual and group life insurance policies to provide a 60 day grace period for payment of premium before terminating the policy if the premium is fully paid within the grace period. 2)Requires insurers to mail a notice of pending lapse and termination at least 30 days prior to the termination of an individual or group life insurance policy for non-payment of premium. 3)Permits an applicant for, or owner of, an individual life insurance policy to designate additional persons to receive notices of lapse or termination. 4)Requires a life insurer to notify an insured when a premium payment is due and the insured did not make a designation at the time the policy was issued of the insured's right to make or change a designation. 5)Provides that an insured may change the designation at any time. 6)Requires individual life insurance policies to include a provision allowing reinstatement of a lapsed policy within five months with payment of past due premium if the insured can demonstrate cognitive impairment or loss of functional capacity. 7)Conforms existing notice requirements for assignees of life insurance policies to the notice requirements in this bill. EXISTING LAW : AB 1747 Page 2 1)Requires a notice of cancellation be mailed at least 20 days prior to cancelling an automobile insurance policy. 2)Requires a 60 day grace period for payment of premium for individual variable life insurance policies. FISCAL EFFECT : Unknown. COMMENTS : 1)Purpose. According to the author, the bill provides consumer safeguards from which people who have purchased life insurance coverage, especially seniors, would benefit. Under existing law, individuals can easily lose the critical protection of life insurance if a single premium is accidentally missed (even if they have been paying premiums on time for many years). If an insured individual loses coverage and wants it reinstated, he or she may have to undergo a new physical exam and be underwritten again, risking a significantly more expensive, possibly unaffordable premium if his or her health has changed in the years since purchasing the policy. Therefore, the protections provided by AB 1747 are intended to make sure that policyholders have sufficient warning that their premium may lapse due to nonpayment. 2)Designation Notices. The bill requires insurers to provide a notification of policyholders' right to designate another recipient of lapse and termination notices when premium is due. Consumers have a range of options for how often (e.g., monthly, quarterly, annually). Providing a notice to the insured with every premium billing notice when monthly or quarterly payments are made creates an administrative burden out of proportion with the value of the notice. The author may wish to consider an amendment requiring insurers to provide the notice on an annual basis. The author may also wish to consider an amendment requiring that the applicant be provided with a designation form. REGISTERED SUPPORT / OPPOSITION : Support California Advocates for Nursing Home Reform (CANHR) California Alliance for Retired Americans AB 1747 Page 3 California Retired County Employees Association (CARA) Congress of California Seniors (CCS) Consumer Federation of California Opposition Association of California Life and Health Insurance Companies (unless amended) Analysis Prepared by : Paul Riches / INS. / (916) 319-2086