BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 1449| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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. CONTINUED SB 1449 Page 2 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. CONTINUED SB 1449 Page 3 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. CONTINUED SB 1449 Page 4 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 CONTINUED SB 1449 Page 5 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 **** END **** CONTINUED