BILL ANALYSIS Ó
SB 1449
Page 1
SENATE THIRD READING
SB 1449 (Ron Calderon)
As Amended August 20, 2012
Majority vote
SENATE VOTE :37-0
INSURANCE 12-0 APPROPRIATIONS 17-0
-----------------------------------------------------------------
|Ayes:|Solorio, Hagman, |Ayes:|Gatto, Harkey, |
| |Bradford, | |Blumenfield, Bradford, |
| |Charles Calderon, Carter, | |Charles Calderon, Campos, |
| |Feuer, Beth Gaines, | |Davis, Donnelly, Fuentes, |
| |Hayashi, Miller, Olsen, | |Hall, Hill, Cedillo, |
| |Skinner, Wieckowski | |Mitchell, Nielsen, Norby, |
| | | |Solorio, Wagner |
| | | | |
-----------------------------------------------------------------
SUMMARY : Permits life insurance policies to include premium and
surrender charge waivers triggered by specified medical
conditions, disability, and unemployment. Specifically, this
bill :
1)Permits life insurance policies and annuities to include
provisions that waive surrender charges when the owner,
insured or annuitant becomes unemployed.
2)Requires insurers to establish additional reserves when
offering a waiver of surrender charge benefit triggered by
unemployment.
3)Requires provisions waiving premium or surrender charges to
include specified provisions relating to the scope of the
contract, reinstatement, incontestability, claim submission,
claim forms, physical examinations, and proof of loss.
4)Requires the Insurance Commissioner (commissioner) to review
contracts including waiver of premium or surrender charges to
ensure they are clearly worded and are not unfair or
economically unsound to the owner, insured, or annuitant.
5)Prohibits contracts containing premium waiver or surrender
charge waivers from containing any language that implies that
SB 1449
Page 2
the policy provides long-term care coverage.
6)Prohibits the insurer from denying any claim for a premium or
surrender charge waive under these provisions based on a
pre-existing condition after the policy has been in effect for
two years.
7)Specifies the exclusions that may apply to these provisions.
8)Allows a life insurance policy owner who is totally disabled
to qualify for a waiver of premium on a life insurance policy.
9)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.
10)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.
11)Permits insurers to require that total disability to continue
for an uninterrupted period of time to qualify for a premium
waiver.
12)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
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.
13)Permits life insurance and annuity contracts to include
provisions for waiving surrender charges if the owner,
insured, annuitant, or beneficiary:
SB 1449
Page 3
a) Develops a terminal condition.
b) Receives home or community based services on
prescription of a physician.
c) Becomes confined in a skilled nursing or other
residential care facility.
d) Becomes totally disabled.
e) Has a medical condition that would result in death in
the absence of treatment.
f) Develops a chronic illness that results in a permanent
inability to perform activities of daily living.
g) Becomes unemployed.
14)Requires insurers seeking to offer these provisions give the
commissioner a copy of the entire contract to facilitate the
commissioner's review.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, increased costs to the Insurance Fund based on
workload for the Department of Insurance to conduct reviews and
re-filings from insurers. Increased costs of approximately
$135,000 in 2012-13, growing to $195,000 in 2013-14. On-going
costs would likely be in the range of $140,000 per year.
COMMENTS : 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 times, including a waiver
of premium during periods of disability and 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.
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
SB 1449
Page 4
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.
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086
FN: 0005005