BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
SB 590 (Calderon) Hearing Date: March 23, 2011
As Introduced: February 17, 2011
Fiscal: Yes
Urgency: No
SUMMARY For the specially licensed line of life insurance for
funeral and burial expenses, would exempt sales in a senior's
home from an advance notice requirement if the policy's initial
face amount is $15,000 dollars or less, it includes a "free
look" period of 60 days during which the purchaser can cancel
the policy and be refunded all payments, the seller provides an
equivalent notice at the time of the sales meeting, a signed
copy of which is retained, and also provides a post-sale notice
of the purchase, and a form suitable for use in exercising the
right of cancellation, to the buyer, their family and other
interested parties specified by the buyer.
DIGEST
Existing law
1. Provides special limited licensing procedures for life
insurance for funeral or burial expenses.
2. For sales of life insurance generally, requires persons who
wish to meet with a senior in the senior's home to sell or
generate leads for life insurance sales to deliver a written
notice to the senior at least 24 hours before the first meeting
in that home.
3. This notice informs the senior of their rights in such in
home meetings. The law:
a. Requires the notice to contain various matters
including the senior's right to have other persons present
at the meeting, the right to end the meeting at any time,
the right to file a complaint with the Department of
Insurance and the phone numbers for use in reaching the
Department's consumer assistance office, and the right to
know in advance the names of the individuals who will be
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coming to the senior's home.
b. Provides that immediately upon contacting the
senior on the premises of their home, the person is
required, before making any statement other than a
greeting, to state that the purpose of the contact is to
talk about insurance and to state the names and titles of
all persons arriving at the senior's home and the name of
the insurer represented by the person, if known.
c. Requires each person attending such a meeting with
a senior is required to provide the senior with written
identification.
d. Specifies that all persons attending a meeting
with a senior are required to immediately end all
discussions and leave the home of the senior after being
asked to leave by the senior.
e. Prohibits persons seeking to sell life insurance
at the home of a senior, whether in person or by
telephone, from using any plan, scheme, or ruse that
misrepresents the true status or mission of the contact.
4. Additionally, other provisions of law applicable to the sale
of individual life insurance policies specify that every such
policy must contain or have attached a notice informing the
policy owner of their right to cancel the policy by delivering
it or mailing it to the insurer or their agent within a
specified period. Under current law, such policies with an
initial face value of less than $10,000 dollars are subject to
a similar notice by means of a separate but related provision
of law, although the policies with a $10,000 dollar or greater
initial face amount carry an express right to refund within 30
days of the owner giving notice of cancellation.
5. Under both of these provisions of law, insurers are required
to disclose how long the right of cancellation is available to
the new policy owner under the policy they have purchased; the
existing law permits the insurer to specify this time period
upon policy issuance, subject to the requirement that it shall
be not less than 10 days nor more than 30 days.
This bill
1. Would exempt from the above pre-notification law and its
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accompanying duties the in-home sale to a senior of policies
of life insurance designated by the purchaser for funeral or
burial expense, if the life insurance policy:
a. Has an initial face amount of fifteen thousand
dollars or less ($15,000), and
b. Provides a "free look" period in which the purchaser
has 60 days to cancel the policy and be refunded payments
made to the insurer prior to the cancellation of the
policy;
2. Would require that within 14 days of a transaction of the
type described above, the issuer shall provide by
first-class mail written notice of the purchase and the
60-day right of cancellation to the senior, any family
member designated by the senior, and any financial, estate
planning, or other advisor of the senior's choosing at
addresses provided by the senior. The notice shall include
all of the following:
a. Information on the right of cancellation,
b. A statement that the notice recipient is authorized
to contact the insurer to inquire about the policy on
behalf of the policyholder
c. A form suitable for the senior's use in exercising
the right of cancellation, and
d. Information on how to contact the department for
information or to file a complaint, including the
telephone number of the department's customer assistance
office;
3. Would authorize, but does not require, the Department of
Insurance to adopt, by regulation, a standardized form for
use in complying with the requirements of paragraph (2)
above;
4. Would specify that the 24 hour advance notice requirement
shall be deemed satisfied with respect to policies exempt
pursuant to this bill provided:
a. the licensee making an in-home sale to a senior
pursuant to this bill provides a copy of the 24-hour
advance notice otherwise required to the senior at the
time of the meeting in the senior's home, and
b. The licensee retains in his or her files a copy of
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the notice signed by the purchaser;
5. Would modify current law applicable to sales of individual
life insurance policies of less than $10,000 by making it
applicable to policies with an initial face amount of
$15,000 dollars or less delivered or issued for delivery in
this state on or after January 1, 2012;
6. Would revise the law governing the sale of individual life
insurance policies to specify that for the sale of small
face amount funeral and burial policies which are the
subject of this Act, policy owners have a statutory right to
60 days in which to return a policy for cancellation and a
refund of all premiums and policy fees paid, rather than the
10 to 30 day time frame current law allows their insurer to
specify. Refunds are required to be provided not later
than 30 days after the date the insurer is notified that the
insured has cancelled the policy.
COMMENTS
1. Purpose of the bill According to the author, "final
expense" and "pre-need" policies are distinctly different
from the insurance products targeted by California's 24
hour notice law.
2. The author believes that today's law protecting seniors
from unscrupulous insurance agents selling unneeded and
ill-advised annuities and other insurance products, because
it captures every class of annuity or life insurance policy
regardless of size is overbroad. In the author's view, the
average size of burial and pre-need policy is such there is
no chance that a senior will lose their life savings with
the purchase of a final expense or pre-need policy and
therefore a different system of rules can reasonably
protect the interests of seniors and their loved ones...
3. According to the sponsor, American Bankers Insurance
Company, pre-need insurance policies "provide seniors the
peace of mind that comes with knowing that their funeral
expenses will be paid and will not become a burden to their
loved ones when they die."
"Because pre-need policies are so different from the
investment products targeted (under current law), SB 590
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proposes to lift the 24 hour notice requirements
specifically for this narrow band of insurance products.
However, the bill maintains the integrity of the law by
requiring that any agent selling pre-need policies deliver
a notice to the senior prior to the start of the meeting
and if the senior purchases a policy, the notice must be
signed by the senior along with the application for
insurance coverage. Current law simply requires that the
notice be provided?. In addition, SB 650 actually expands
the scope of existing law by increasing the free look
period to 60 days during which a full refund is available.
The expansion of the free look period is important because
it will allow the consumer to go through at least 1 if not
2 premium payments; thus allowing them to determine if the
product really does fit into their monthly expenses."
4. California law governing the in-home sales of life
insurance has the purpose of safeguarding senior consumers
from undue influence and mistakes of judgment. Currently,
for all classes of life insurance and annuities, this is
accomplished by providing structured rules for these
transactions that support the independent judgment of the
senior and recognize the possibility that it may make sense
to have family members or other advisors present and able
to assist the senior in their decision-making process.
This provision of current law recognizes that for seniors,
knowledge of their life insurance arrangements by family
members and other trusted advisors can assist the conduct
of the senior's financial affairs, subject to their
approval.
5. SB 590 presents the question of whether for funeral and
burial expense insurance, a specialized life insurance
vehicle for a very specific need all families anticipate, a
mandatory post-purchase notice to family and advisors might
constitute a more apt and effective consumer protection
than that which is currently mandated.
The sponsor states such a post-transaction notice, coupled
to the new right of cancellation, will work to make the
right of cancellation more effective by enabling family
members to identify in a timely fashion any possible
duplication of resources, while, secondarily, ensuring
those individuals know what resources are available and
what steps they can take in planning for funeral and burial
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arrangements when confronted by a loss.
6. Suggested Amendments SB 590 as introduced requires
technical amendments as follows:
a. On page 2, line20, after "advisors", insert a
"comma".
b. On page 3, line 4, strike "name" and insert
"names".
7. Prior Legislation This measure is identical to Senate
Bill 397 of the 2009-2010 session which was vetoed. During
both the 2005-2006 sessions, and the 2007-2008 sessions,
related bills were passed and vetoed (AB 608 and SB 739).
The current bill includes significant new consumer
protections not included in the earlier measures.
In his veto of SB 397 in 2009, Governor Schwarzenegger
stated:
"I am returning Senate Bill 397 without my signature.
During the previous two legislative sessions, I have
vetoed similar legislation that would have granted an
exemption from the current requirement that seniors be
given 24-hour notice in advance of any attempt to meet in
a senior's home to discuss the sale of a burial or funeral
policy. I stated my belief that this notice requirement
creates an important "bright line" test that insurance
agents know not to cross and is a sound consumer
protection practice.
Although this measure provides additional notice
requirements to attempt to protect against fraud, I remain
unconvinced of the need to deviate from the current
24-hour notice requirement. Asking an agent to wait one
day before meeting in someone's home is a minor request in
order to protect seniors against fraud.
For these reasons, I am unable to sign this bill."
POSITIONS
Support
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American Bankers Insurance Company (Sponsor)
The California Funeral Directors Association
Cemetery and Mortuary Association of California
Oppose
California Advocates for Nursing Home Reform
Consultant: Ken Cooley (916) 651-4772