BILL ANALYSIS                                                                                                                                                                                                    Ó








                             SENATE INSURANCE COMMITTEE
                           Senator Ronald Calderon, Chair


          AB 1747 (Feuer)     Hearing Date:  June 13, 2012  

          As   June 7, 2012
          Fiscal:             No
          Urgency:       No

          VOTES:              Asm. Floor(05/14/12)51-24/Pass
                         Asm. Ins. (05/02/12)08-03/Pass


           SUMMARY  Would establish a statutory minimum 60 day grace period 
          for nonpayment of premium on life insurance policies.  Also 
          would require that life insurers permit policy owners to 
          designate at least one other person to receive notice of a 
          missed payment and prohibits termination until that notice has 
          been mailed 30 days prior to the effective date of termination 
          for nonpayment of premium.  
           

           DIGEST
           
          Existing law


            1.  Requires that life insurance policies contain certain 
              provisions, including, but not limited to, an individual life 
              insurance policy notice of the right to cancel a policy;


           2.  Requires life insurers to provide certain notices to individual 
              life insurance policy holders, including, but not limited to, a 
              notice of premium increases.

           
          This bill


            1.  Would require that every life insurance policy issued or 
              delivered in this state contain a provision for a grace 
              period of not less than 60 days from the premium due date 




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              that provides that where the premium owed is paid fully 
              within the grace period the policy remains in force;


           2.  Would also require an insurer to give the applicant for an 
              individual life insurance policy the right to designate at 
              least one person, in addition to the applicant, to receive 
              notice of lapse or termination of a policy for nonpayment of 
              premium; 


           3.  Would require an insurer to provide each applicant with a 
              form, as specified, to make the designation and to notify 
              the insured annually of the right to change the designation; 



           4.  Would prohibit a notice of pending lapse and termination 
              from being effective unless mailed by the insurer to the 
              named insured, a named designee, and a known assignee or 
              other person having an interest in the policy at least 30 
              days prior to the effective date of termination if 
              termination is for nonpayment of premium;


           5.  Would also make conforming changes.


          COMMENTS
           
          1.  Purpose of the bill   To provide 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).  
              The protections provided by AB 1747 are intended to make 
              sure that policy owners have sufficient warning that their 
              premium may lapse due to nonpayment.


           2.  Background and Discussion    An insurer may not terminate a 
              life insurance policy for nonpayment until 31 days from the 
              date the payment is due.  This 30 day grace period is set in 
              regulation, but not in statute. (10 CCR § 2534.3.)  This 
              bill intends to add additional procedural protections to a 




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              policy owner in order to avoid lapse.


                a.      Insured vs. Policy Owner.  The insured and the 
                  policy owner (or policy holder) is frequently, but not 
                  always, the same person.  If Spouse A purchases a policy 
                  measured by the life of Spouse B, than Spouse A is the 
                  policy owner and Spouse B is the insured.  The author 
                  has explained that the intent of the bill is to provide 
                  policy owners additional protections.


                b.      Sixty Day Grace Period.  This bill provides for a 
                  minimum grace period of 60 days after the date the 
                  premium was due.


                c.      Option to Provide Additional Notice of Nonpayment 
                  to Designated Recipient and Separate 30 Day Grace Period 
                  Triggered by Notice.  The bill is based on a long-term 
                  care insurance statute and requires insurers to provide 
                  a notification of a policy owner's right to designate at 
                  least one other person to receive a notice of 
                  nonpayment.  (Ins. Code § 10235.40.)    An insurer would 
                  not be able to terminate the policy for nonpayment until 
                  30 days after a notice of nonpayment has been mailed to 
                  the insured and a designee (if named) and other person 
                  having an interest in the policy (such as an assignee).  
                  The insurer would have to notify the insured annually of 
                  the right to designate or change the designation of the 
                  additional recipient.


                d.      Extends Period of Notice Required to Assignees.  
                  Existing law provides protections to assignees, such as 
                  creditors who are to receive the benefits of life 
                  insurance policy to ensure the debt is covered.  An 
                  insurer must notify the assignee at least 10 days before 
                  the final lapse of the policy.  This bill requires that 
                  the creditor be notified not less than 30 days prior to 
                  the final lapse of the policy.

           1.  Summary of Arguments in Support  


                a.     The Author explains that codifying a grace period 




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                  that provides a longer window of time to pay bill will 
                  help reduce the likelihood that policy will lapse. In 
                  some instances, people who faithfully paid their life 
                  insurance policies for years accidentally let their 
                  policy lapse (in some cases, because they were being 
                  hospitalized when the bill came, in others, as a result 
                  of a mail mix-up or forgetfulness, etc.).  Once the 
                  policy lapses, the individual must be re-underwritten 
                  with a new exam, which may cause the quoted premium to 
                  skyrocket or the policy owner to abandon the policy.


                b.     Consumer Federation of California states that by 
                  providing the option for a policy owner to name at least 
                  one designee to receive a copy of a pending lapse 
                  notice, the bill ensures that a trusted friend or 
                  relative can make sure the bill is paid in the event the 
                  policy owner is unable to respond or simply does not 
                  realize the bill has gone unpaid.

           2.  Summary of Arguments in Opposition   

              None received.
           
          3.  Suggested Amendments  


                a.     The Committee may wish to consider amendments that 
                  replace the term insured with policy owner where the 
                  bill refers to the person responsible for making 
                  payments or selecting a designee.


                b.     Amend page 2, lines 3 to 7, to read:


                  10113.71.  (a) Every life insurance policy issued or 
                  delivered in this state shall contain a provision for a 
                  grace period of not less than 60 days from the premium 
                  due date.  The 60 day grace period shall not run 
                  concurrently with the period of paid coverage.    The 
                  provision shall provide that the policy shall remain in 
                  force during the grace period.   The provision shall 
                  provide that if the premium owed is fully paid within 
                  the grace period the policy shall remain in force.





                                                AB 1747 (Feuer), Page 5





                   The California Department of Insurance suggested these 
                  amendments and explained that:


                   i.             Without clarification that the grace 
                    period may be read to run concurrently with paid 
                    coverage.


                   ii.            Under existing law, if the insured dies 
                    during the grace period, the premiums owed will be 
                    deducted from the benefit paid.  Without the 
                    amendments, AB 1747 could be read as saying that there 
                    is no coverage during the grace period unless the 
                    premium is paid.


                c.      Amend page 3, lines 25, to page 3, line 6, to 
                  read:

                  10113.72.  (a) An individual life insurance policy shall 
                  not be issued or delivered in this state until the 
                  applicant has been given the right to designate at least 
                  one person, in addition to the applicant, to receive 
                  notice of lapse or termination of a policy for 
                  nonpayment of premium. The insurer shall provide each 
                  applicant with a form to make the designation. That form 
                  shall  include   provide the opportunity for the applicant 
                  to submit  the name, address, and telephone number of at 
                  least one person, in addition to the applicant, who is 
                  to receive notice of lapse or termination of the policy 
                  for nonpayment of premium.
          

           POSITIONS  
          
          Support   

          California Department of Insurance
          California Alliance of Retired Americans
          California Advocates for Nursing Home Reform
          Congress of California Seniors
          California Retired County Employees Association
          Consumer Federation of California
          National Association of Insurance and Financial Advisors of 




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               California (NAIFA-California)
           
          Opposition
           
          None received.


          Consultant:   Hugh Slayden, (916) 651-4773