BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1449| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 1449 Author: Calderon (D) Amended: 4/17/12 Vote: 21 SENATE INSURANCE COMMITTEE : 8-0, 4/25/12 AYES: Calderon, Gaines, Anderson, Corbett, Correa, Lieu, Lowenthal, Wyland NO VOTE RECORDED: Price SUBJECT : Life insurance and annuities SOURCE : Association of California Life & Health Insurance Companies DIGEST : This bill broadens the definition of life insurance to include accelerated death benefits and waivers of surrender charges triggered by specified medical conditions and waivers of premium triggered by disability, adds waivers of surrender charges triggered by specified medical conditions to the definition of annuity, and distinguishes these insurance and annuity products from disability, health, and long-term care products that share similar triggering mechanisms. ANALYSIS : Existing law governs the business of insurance and defines various types of insurance for these purposes, including life insurance, and disability insurance. This bill: CONTINUED SB 1449 Page 2 1. Provides that a life insurance policy that includes accelerated payment of part or all the death benefits, a waiver of a premium benefit, or a waiver of surrender charges, as specified shall be deemed to be life insurance or annuity coverage. 2. Provides that an annuity that includes a waiver of surrender charges, shall be deemed to be annuity coverage, as applicable and shall not be subject to provisions governing disability, health, or long-term care insurance, unless those provisions also apply to life insurance or annuities, as applicable. Background Traditional and "living" benefits . Life insurance includes insurance upon the lives of persons or appertaining thereto, and the granting, purchasing, or disposing of annuities. (Insurance Code § 101.) Traditionally, a life insurance policy paid a cash benefit to a third party designated to receive the benefit triggered by insured person's death (the "beneficiary"). But developments and innovations have changed the conditions for payment to allow a life insured to receive living benefits under circumstances when the insured may need greater resources or might not be able to afford policy premiums. These benefits are frequently included in the form of riders, optional provisions added on to the policy. Some of these benefits are based on triggers shared by other types of insurance. Permanent life insurance . Life insurance falls into two categories, term and permanent. Term life insurance, like many other types of insurance policies, covers the insured for a specific period (like an annual car insurance policy). Permanent life insurance, such as a whole life policy, accrues a cash value over time and provides lifelong protection as long as the premiums are paid. Insurance regulation . The Insurance Commissioner reviews various types of policies (life, disability, long-term care, etc.) for approval based on standards developed for those policies. The filing processes for approval are in CONTINUED SB 1449 Page 3 part based on the trigger of benefits, not just the benefits themselves. So life insurance features triggered by conditions related to medical conditions, disability, or the need for long-term care will be reviewed based on standards designed for life insurance, as well as any other classes of insurance that share those triggers. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 5/1/12) Association of California Life & Health Insurance Companies (source) American Council of Life Insurers Liberty Mutual Group ARGUMENTS IN SUPPORT : Liberty Mutual Group supports this bill because the benefits allow consumers to continue coverage without premium payment or receive much needed care. Most, if not all, states have either amended their law and regulations to accommodate such benefits for life insurance or annuity products, or have just allowed companies to sell these products. There has been a national recognition and acceptance of these consumer benefits. JJA:mw 5/1/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED