BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  SB 1449|
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                                 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:
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          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 

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          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

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