BILL ANALYSIS Ó
SB 1449
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Date of Hearing: June 27, 2012
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
SB 1449 (Calderon) - As Amended: June 21, 2012
SENATE VOTE : 37-0
SUBJECT : Life Insurance: Premium and Surrender Charge Waivers
SUMMARY : Permits life insurance policies to include premium
and surrender charge waivers triggered by specified medical
conditions. Specifically, this bill :
1)Allows a life insurance policy owner who is totally disabled
to qualify for a waiver of premium on a life insurance policy.
2)Defines total disability as:
a) Inability to perform with reasonable continuity the
substantial and material duties of the job due to
sickness or bodily injury in the first 24 months of
disability.
b) Inability to perform with reasonable continuity the
duties of any other suitable job after the first 24
months of disability.
3)Permits life insurance contracts to include definitions of
total disability that include presumptive total disability for
the total loss of sight, hearing, speech, use of hands or
feet.
4)Requires total disability to continue for a consecutive period
of time specified in the contract to qualify for a premium
waiver.
5)Permits the life insurance policy to exclude total disability
injuries that were self-inflicted or resulted from reckless or
illegal conduct.
6)Establishes the following minimum standards for the duration
of a premium waiver for total disability:
a) If the disability begins before the age of 60, the
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premium waiver must continue for the duration of total
disability. If total disability continues to the age of
65, then all future premiums are waived.
b) If the disability begins after the age of 60, the
premium waiver must continue until the age of 65.
7)Permits life insurance and annuity contracts to include
provisions for waiving surrender charges if the owner,
insured, annuitant, or beneficiary:
c) Develops a terminal condition.
d) Receives home or community based services on
prescription of a physician.
e) Becomes confined in a skilled nursing or other
residential care facility.
f) Becomes totally disabled.
g) Becomes disabled and unable to work.
h) Develops a chronic illness that results in a
permanent inability to perform activities of daily
living.
i) Becomes unemployed.
8)Requires the Department of Insurance to report to the
Legislature the number and type of supplemental contracts
approved based on the provisions in this bill. The report is
due before January 1, 2014.
9)Clarifies that a range of existing consumer protections apply
to supplemental contracts for waiver of premium and waiver of
surrender charges.
EXISTING LAW :
1)Permits the sale of life insurance under the regulatory
supervision of the commissioner.
2)Permits the sale of disability insurance under the regulatory
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supervision of the commissioner.
3)Provides that statutes governing disability insurance do not
apply to life insurance, endowment or annuity contracts, or
contracts supplementing these policies if the policy:
a) Provides additional benefits for accidental death,
dismemberment, or loss of sight.
b) Provides waivers for lapse in the payment of premium
for total and permanent disability of the insured.
c) Provides a special surrender value, benefit or
annuity if the insured is totally and permanently
disabled.
4)Provides that supplemental contracts to life insurance
policies that include these added benefits are subject to the
commissioner's review.
5)Restricts the commissioner's review of these supplemental
contracts to the following:
a) Preventing fraud, unfair trade practices, or
insurance that is economically unsound for the insured.
b) Assuring the language of the policy can be readily
understood and interpreted.
c) Assuring the policy is not unintelligible,
uncertain, ambiguous, abstruse or likely to mislead the
consumer.
6)Requires that the commissioner review disability insurance
policies prior to their use.
FISCAL EFFECT : Unknown.
COMMENTS :
1)Purpose . According to the author, this bill would streamline
the process for approval of special features for life
insurance and annuity products that may provide consumers with
much-needed resources during difficult and trying time,
including a waiver of premium during periods of disability and
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a waiver of the surrender charge if the insured suffers
specified serious medical conditions, disability, or
unemployment. These features are commonly available in other
states, but there have been challenges obtaining approval to
offer these features in California under existing law.
2)Surrender Charge Waiver . Permanent life insurance, such as a
whole life policy, accrues a cash value (which is different
than the amount paid to a beneficiary if the insured dies)
over time and provides life insurance protection as long as
the premiums are paid. The policy owner can surrender a life
insurance policy for cash value, but generally must pay a
surrender charge for doing so if the surrender occurs within a
time period established in the policy (commonly 7-10 years
from the issuance of the policy or annuity). Annuity
contracts also have cash value and impose surrender charges on
a similar basis.
3)Related Legislation . Assembly Bill 1747 (Feuer) would
establish notification and grace period requirements for life
insurance policies designed to prevent life insurance policies
lapsing due to the illness or disability of the policy owner.
The bill is pending on the Senate Third Reading File.
Senate Bill 1212 (Calderon) was amended to include provisions
relating to accelerated death benefits that were removed from
this bill. The bill is scheduled for a hearing in this
committee on June 27, 2012.
4)Suggested Amendment . Section 10271(b)(1) needs to be amended
to correct an erroneous reference to "insurer."
REGISTERED SUPPORT / OPPOSITION :
Support
Association of California Life & Health Insurance Companies
Opposition
None Received.
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086
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