BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                      



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          |SENATE RULES COMMITTEE            |                  SB 1449|
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                              UNFINISHED BUSINESS


          Bill No:  SB 1449
          Author:   Calderon (D)
          Amended:  8/20/12
          Vote:     21

           
           SENATE INSURANCE COMMITTEE  :  8-0, 4/25/12
          AYES:  Calderon, Gaines, Anderson, Corbett, Correa, Lieu, 
            Lowenthal, Wyland
          NO VOTE RECORDED:  Price

           SENATE FLOOR  :  37-0, 5/30/12
          AYES:  Alquist, Anderson, Berryhill, Blakeslee, Calderon, 
            Cannella, Corbett, Correa, De León, DeSaulnier, Dutton, 
            Emmerson, Evans, Fuller, Gaines, Hancock, Harman, 
            Hernandez, Huff, Kehoe, La Malfa, Leno, Lieu, Liu, 
            Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, 
            Steinberg, Vargas, Walters, Wolk, Wright, Wyland, Yee
          NO VOTE RECORDED:  Runner, Simitian, Strickland

           ASSEMBLY FLOOR  :  79-0, 8/27/12 - See last page for vote


           SUBJECT  :    Life insurance and annuities

           SOURCE  :     Association of California Life & Health 
          Insurance Companies


           DIGEST  :    This bill permits life insurance policies to 
          include premium and surrender charge waivers triggered by 
          specified medical conditions, disability, and unemployment. 

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           Assembly Amendments  revise and recast the bill with a 
          similar intent as it left the Senate.

           ANALYSIS  :    

          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 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. 

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          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: 

             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. 


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             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. 

           Comments  

          According to the author's office, this bill streamlines 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 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. 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes   
          Local:  No


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          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.  
          Ongoing costs would likely be in the range of $140,000 per 
          year. 

           SUPPORT  :   (Verified  8/27/12)

          Association of California Life & Health Insurance Companies
          American Council of Life Insurers



           ASSEMBLY FLOOR  :  79-0, 8/27/12
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Cedillo, Chesbro, Conway, Cook, Davis, Dickinson, 
            Eng, Feuer, Fletcher, Fong, Fuentes, Furutani, Beth 
            Gaines, Galgiani, Garrick, Gatto, Gordon, Gorell, Grove, 
            Hagman, Halderman, Hall, Harkey, Hayashi, Roger 
            Hernández, Hill, Huber, Hueso, Huffman, Jeffries, Jones, 
            Knight, Lara, Logue, Bonnie Lowenthal, Ma, Mansoor, 
            Mendoza, Miller, Mitchell, Monning, Morrell, Nestande, 
            Nielsen, Norby, Olsen, Pan, Perea, V. Manuel Pérez, 
            Portantino, Silva, Skinner, Smyth, Solorio, Swanson, 
            Torres, Valadao, Wagner, Wieckowski, Williams, Yamada, 
            John A. Pérez
          NO VOTE RECORDED:  Donnelly


          JJA:m  8/28/12   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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