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 5/13/12)
Association of California Life & Health Insurance Companies
(source)
American Council of Life Insurers
Liberty Mutual Group
OPPOSITION : (Verified 5/13/12)
California Advocates for Nursing Home Reform
California Health Advocates
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.
ARGUMENTS IN OPPOSITION : California Health Advocates
states that they are "very concerned that SB 1449 will
exempt long-term care benefits provided through an
insurance or annuity product from all of the standards and
consumer protections in Chapter 2.6 of the California
Insurance Code. The standards and protections in this
Chapter apply to all long-term care benefits sold in
California and result in some of the highest quality
long-term care benefits and consumer protections in the
nation. Allowing long-term care benefits provided through
a life insurance or annuity policy to avoid the
requirements of that Chapter would leave consumers without
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those protections and allow companies to establish
standards of their own choosing. Long-term care benefits
in life and annuity products are available and sold today
that do comply with the current requirements of Chapter
2.6. There is no valid reason to allow companies the right
to avoid those standards and protections in return for
quicker approval and less oversight of those benefits. It
is indefensible that consumers would have less protection
when insured for their long-term care expenses through a
life insurance or annuity product that if they bought those
benefits separately."
JJA:mw 5/16/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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